Mumbai: Reserve Bank Deputy Governor R Gandhi today welcomed the government's move to give priority for well-performing banks in capitalisation, saying it is the "right message" for improving efficiency of lenders, and flagged concerns over the rising NPAs in the system.
"If you send the right message that if you are performing well then the government will be willing to put in additional funds. So that's the message that has been sent across to all banks to be more efficient," he told reporters on the sidelines of an event here.
"The idea is to make banks serious about improving their profitability and their efficiency," he said.
Gandhi was referring to the Rs 6,990-crore capital infusion announced by the government over the weekend, wherein better performing lenders like SBI, Bank of Baroda, Canara Bank and Punjab National Bank are given priority in capital allocation over others. The government owns 27 banks.
The asset quality continues to be a concern for the RBI which has resulted in cautioning from the central bank, Gandhi said.
"Asset quality has always been a concern for the Reserve Bank since the last financial crisis that has happened...So continuously it is a concern for the Reserve Bank," he said, exuding confidence that banks will be able to overcome the asset quality issues.
The gross non-performing assets in the system rose to 4.5 per cent in the September quarter as against 4 per cent mark in the March quarter. If the restructured assets are included, the total distressed assets in the system stood at 10.7 per cent as of the September quarter as against 10 per cent in the March quarter.
"We knew that there will be some slippages of stressed assets into NPAs, so that's why we look at the entire set of stressed assets," Gandhi said, adding the recent trend of banks reporting an uptick in loans recast earlier slipping into NPAs is not a surprise.
Even private sector lenders like ICICI Bank and ING Vysya have started spike in bad loans and CDR loans slipping into bad assets in the December quarter. They have also warned of more stress in the coming few quarters.
It may be noted that for fund infusion, the government adopted a new criteria under which banks that are more efficient would be rewarded with extra capital so that they can further strengthen their position and capital base.
The capital infusion was decided based on the performance of banks. Better the performance higher will be the infusion, an official statement had said.
"The methodology for arriving at the amount to be infused in these banks has been based on efficiency parameters. First of all, weighted average of return on assets (RoA) for all PSBs for last three years put together was arrived at and all those who were above the average have been considered," it said.
This is the first tranche of the Rs 11,200-crore fund infusion into the 27 state-run lenders announced in the last Budget.
On inconsistencies in treasury operations performance of some state-run banks in spite of the low rates environment which gives opportunities to book profits, Gandhi said RBI has been pushing them for a greater focus on this aspect.
"You should be able to perform in every aspect of banking. Not just credit book, you should be able to take full advantage of the opportunities that are available in treasury books also. For that you have to make yourself capable of doing by having the professionalism," he said.
When asked why we see no progress on foreign banks turning into wholly-owned subsidiaries, Gandhi said some lenders, who operate as branches of entities incorporated abroad at present, are presently preparing for the shift.
"Several preparatory works need to be done which I suppose the banks are doing. So, some banks are already well into that kind of preparatory work. Perhaps they will wait for the Budget...They are certainly moving in the right direction," he said.
In November 2013, the RBI had come out with the final guidelines for foreign banks to become fully owned subsidiaries, under which it had asked banks with over 20 branches to get converted into local subsidiaries.
Out of over 90 foreign banks, only StanC, HSBC and Citi fall under the 20 branch category, while RBS, though had more than 20 branches, is winding down its retail banking in the country following its failure to sell them to HSBC.
The new rule on subsidirisation will be effective for those players entering the country from August 2010.
