Mumbai: Reserve Bank Deputy Governor Viral Acharya today said the time may have come to "re-privatise" some of the nationalised banks, as the government scurries for funds to capitalise bad loan-saddled lenders.
"Perhaps re-privatising some of the nationalised banks is an idea whose time has come ... this would reduce the overall money government needs to inject as bank capital," Acharya said, addressing a Ficci women's wing event here this evening.
Such a move will also help preserve government's "hard-earned fiscal discipline" that has made the country a "darling" for foreign investors along with stable inflation outlook and the diverse nature of the growth engine, he said.
The remarks were made while suggesting credible ways of resolving the current stress in the state-run banks, which included private capital raising, asset sales, mergers, tough prompt corrective actions and divestments.
On divestments, Acharya said once the government gets the banks in shape, it can work towards divesting its stake in them as it has done with various other state-run undertakings.
A bulk of the state-run lenders were private entities before the 1969 nationalisation by the then prime minister Indira Gandhi. While the reach of banks continued to remain restricted, governance issues at these banks, including interference by governments, resulted in PSBs ending up with disproportionate size of bad assets which the system is plagued with.
On prompt corrective action (PCA), Acharya said there is a case for showing "tough love" to undercapitalised banks and make them adhere to the revised PCA rules including restrictions on deposit taking and lending.
"This will ensure a gradual run-off of such banks, and encourage deposit migration away from the weakest public sector banks to healthier public sector banks and private sector banks," Acharya said.
Acharya said healthier state-run banks missed an opportunity in 2013 when their asset quality was much better and could raise private capital by going for a deep discounted rights issue, but can do so again to reduce stress on the government.
Days after governor Urjit Patel made a case of merger of weak state-run banks, Acharya also said there is a case for merging the 26 state-run banks into a few healthier entities. "Some banks can be merged, as a quid pro quo for timely government capital injection into the combined entity.
It would offer the opportunity to rejig management responsibility away from those who have under-performed or dragged their feet the most," Acharya said. Synergies in lending and branch locations can be identified, real estate made available through redundant branches which could be sold, VRS can be offered and a younger, digitally-savvy talent pool can be hired, he said.
Acharya said when they find themselves in a difficult situation, banks resort to either evergreening of loans where an entity is given a fresh loan to service a previous one, or lend to riskier assets, and underlined that both the approaches are fraught with risks.
He said the recently released global financial stability report by the IMF also highlighted the problem by flagging industrial sector as one of the most heavily indebted in the world.
In the report, IMF lists domestic banks as "worse- off" compared to other emerging economy peers because of the "little bank capital" set aside to provide for losses on its NPAs, Acharya said.
"A bank not keeping adequate capital buffer to absorb losses on its loans that are more or less known to be arriving soon is akin to not preparing to rescue with emergency a person who has slipped off the terrace of a skyscraper, and instead in the midst of his almost surely fatal descent, hoping that the laws of gravity would somehow freeze and work differently this time," Acharya warned.
It can be noted that the quantum of NPAs is among the highest in the world, with over 10 per cent of assets stressed and classified either as NPAs or restructured under various dispensations....