In order to deal with the problem of stressed assets and get back to a position from where public sector banks (PSBs) can start generating internal accruals, Reserve Bank of India (RBI) has made a strong case for providing more capital to PSBs. RBI Deputy Governor N S Vishwanathan has said that Indian banks got into stress before implementation of Basel III and revised IFRS which provide protection against system level stresses.
The Deputy Governor said the government of India has supported entire AQR (asset quality review) exercise and they also provided requisite capital for the PSBs. He further said that provision coverage ratio (PCR) has witnessed a decline in the last few months. PCR means the difference between gross Non-performing Assets (NPA) and the net NPA that has to be covered if net NPA is zero which means assets are fully provided for. At one point of time, it used to be 70 percent. As banks are able to generate profit they will be able to do that.
Last month, the government infused capital of Rs 22,915 crore in 13 lenders including State Bank of India (SBI), which will get Rs 7,575 crore, Indian Overseas Bank Rs 3,101 crore and Punjab National Bank Rs 2,816 crore to revive loan growth that hit a two-decade low and to shore up cash-strapped PSBs. This is the first tranche of capital infusion for the current fiscal and more funds would be provided in future depending on the performance of PSBs. The infusion will boost the government's shareholdings in the banks, which have been under-capitalised compared with their private peers because of restrictions on their ability to sell equity to raise money.
The average Capital Adequacy Ratio (CAR) or the ratio of a bank's capital to its risk, for PSBs stood at 11.6 percent as of March 31, lower than 13.2 percent for banking system as a whole. Basel-III regulations provide for bank to have a minimum capital ratio of 9 percent by March 31, 2019.