Bad Loans Resolution Will Leave PSU Banks Starved Of Capital

Public sector banks may need more capital beyond the budgeted allocation in the current financial year due to higher provisioning and haircuts for stressed assets, Reserve Bank of India (RBI) Deputy Governor SS Mundra said on Friday.

The process of resolution of non-performing assets (NPA) and bank capitalisation are closely associated, Mundra told reporters in New Delhi after attending a bankers-borrowers summit organised by industry body ASSOCHAM.

The clean-up of stressed assets will need banks to take haircuts, Mundra said, without putting a number of the quantum of such haircuts. “There is no question of maximum or minimum haircut. Whatever needed haircut has to be taken. I don't think there is any idea to willy nilly to reduce the haircut for the banks.” Following this process, state-owned banks will likely need additional capital infusion, more than the Rs 10,000 crore already provided for in the Union Budget 2017-18.

On the quantum of haircuts banks will need following the clean-up of stressed asset, Mundra said, “There is no question of maximum or minimum haircut. Whatever needed haircut has to be taken. I don't think there is any idea to willy nilly to reduce the haircut for the banks.”

With the Reserve Bank of India’s independent advisory committee identifying 12 cases for immediate action under the insolvency code, it is now for the committee of creditors to work out various solutions, he said.

On the consolidation of public sector banks, he said these are business decisions which need to be taken by respective bank managements. “At this point of time it needs review by the regulator. We will come to that stage much later,” he said.