Finance and banking secretary Rajeev Kumar on Saturday said the government has tried to clean the entire financial system and sustained efforts are made to get rid of loose corporate governance in the country.
In an exclusive interview to CNBC-TV18's Sapna Das, Kumar said the government will fix the effective date of bank merger after consultations with bank boards.
Corporate Governance Tightened
Be it public sector banks (PSBs), private sector banks, rating agencies, debtors, auditors, there was a system which required everyone to be responsible. The entire ecosystem is getting cleaned and it will get cleaned. Now, one has to be responsible and we have just tried to join the dots and so much has been done. This has been happening with the entire space of non-banking financial companies (NBFCs), housing finance companies (HFCs) and Infrastructure Leasing and Financial Services (IL&FS). There was loose corporate governance and everyone can get away by a Chalta Hai attitude. Now, this has been stopped, this has been plugged and that was a very sustained effort.
No Disruption in Merger Process
Results are now very visible, NPAs are declining, special mention accounts (SMAs) are lower, PSBs are fully provisioned, 14 state-run banks are in profit and this is the foundation. We have tested it with Bank of Baroda merger and there was no disruption. So, we were confident that you need the banks with a clear roadmap, in size and scale and freeze it for once. Allow them to grow. So we have created six big banks, in terms of size, employees and they can now have global aspirations.
Timing of the Merger
We thought of the timing of the mergers. The timing is decided that if we have to reach that stage, it’s cyclical. Where when the time comes, banks should be ready and the credit expansion has to take place so you make them robust. The energy of the banks is not lost in the process of merger and this we realised very well in the case of Bank of Baroda, Dena Bank and Vijaya Bank merger. The result is there is no disruption. Banks are very strong and they will go to the market now. The anchor banks will continue to focus and monitor, and the processes are also well known. We have fixed a conference of all these banks on September 5 so that they learn from the case of Bank of Baroda, Dena Bank and Vijaya Bank merger. We have a chartered path now.
Growth Capital to Bank of Baroda
We have given Rs 7,000 crore to Bank of Baroda. Bank’s fundamentals are above the regulatory cap requirement. Don’t look at pieces, look at the broad holistic picture. We have given Bank of Baroda growth capital and we were very clear that we will infuse more money into them when they are ready. The roadmap is you have defined the size, scale and the entire space. You have cleaned them up, made them robust, given them capital and you have given them governance reforms. The department of financial services (DFS) should not be interfering into anything. We would have been late had we not done the mergers now as in 6-7 months’ time, they will take shape to support the economy.
Effective Date of Merger
We will fix the effective date after consultations with bank boards. It could be like the Bank of Baroda, but it will be a smooth process. We will take time, give time to the boards so that nothing is pushed. It's smooth, it's seamless and therefore, we have taken care only to merge those banks which have the same technology platform so that there is the least disruption. Banks, which are on the same technological platform, will have a whole lot of efficiencies like cash management, passbooks and printing.
Merger process should not take more than 12 months as we have experience with us. This can be January 1 or April 1 or whatever and this will be in consultation with the bank boards. We also have to take the Reserve Bank of India (RBI) nod and consult them and this will be a two-way consultation. So, we will take the time and one thing we will ensure that there is no disruption.
Additional 0.25% Capital Norm
For all the big anchor banks, we have taken extra care of introducing 0.25 percent extra regulatory norm to meet its capital and this is for systematically important banks. So, we will talk from the position of strength as we have that moment now.
Capital Infusion in 10 days
Recapitalisation amount of Rs 55,000 crore is going to be almost same as we announced. But, boards may come up with some additional requirement and this amount will be infused in the next week to 10 days.
Recapitalisation Amount Sufficient, Additional Not Required
Buffer is not needed now. Actually, every bank is meeting the regulatory requirement, even the capital given to weak banks will help them come out of the prompt corrective action (PCA) framework. It does not seem that it will need more than Rs 70,000 crore of recapitalisation in FY20.
Recapitalisation to Aid Weak Banks Out of PCA
I have worked at everything very minutely. We have capitalised all banks, we have enabled the weak banks to come out of the PCA and they also have to work. There will be writebacks from the Insolvency and Bankruptcy Code (IBC). Imagine the kind of profit that will come from the write back. All the regulatory parameters have been met.
75% is the Provisional Coverage Ratio
Many of the banks are in the IBC mandated resolution process and they are working on everything, so it’s only a story of financially clean, sound and responsible banks.
Govt Will Protect Interest of Senior Citizens, Small Savers
Interest rates have to be linked to various parameters and you also have to take care of small investors, senior citizens and everybody, which is also very critical. Inflation being low interests of the senior citizens have to be protected, so it’s a very calibrated call that government will take at the appropriate time.