Reserve Bank of India’s deputy governor Viral Acharya said a feasible plan was quickly needed to address the massive recapitalisation requirements of public sector banks. The central bank has been pushing to restore the health of these banks in order to facilitate loan offtake — seen as essential in reviving economic growth.
He expressed surprise that banks were not raising capital at a time when plenty of liquidity was chasing stock markets.
‘Go raise capital’
“What are the bank chairmen waiting for? The elusive improvement in market-to-book which will happen only with a better capital structure and could get impaired by further growth shocks to the economy in the meantime?” asked Mr. Acharya. He was delivering a speech on the ‘The Unfinished Agenda: Restoring Public Sector Bank Health in India.’ He said banks would need a powerful plan aimed at ‘swift’ revival.
“The Indradhanush was a good plan, but to end the Indian story differently, we need a much more powerful plan – a Sudarshan Chakra — aimed at swiftly, within months if not weeks, restoring public sector bank health, with the current ownership structure or otherwise,” he said.
In 2014, the government announced the Indradhanush plan — a blueprint to revive public sector banks, which included capital infusion in these banks over a four-year period.
Mr. Acharya raised the question as to whether bringing down government’s stake in these banks to 52% was sufficient to restore health, as some of them had incurred huge losses.
Commenting on the Insolvency and Bankruptcy Code under the new resolution framework, he said banks should not wait for directions to pursue bankruptcy proceedings in the case of defaulting clients.
RBI has twice directed banks to start insolvency and bankruptcy proceedings against defaulting firms.
The reason behind mandating a higher provision for accounts brought under the IBC was to “increase banks’ provision coverage ratio”.