Q.17 Write a shot note on current situation of the capital adequacy of public sector banks and also discuss the government’s attempts to make them compliant to the

Basel III norms.

Ans. The capital to risk weighted assets ratio (CRAR) of the scheduled commercial banks of India was 12.5 per cent by March 2015 (Basel-III) falling to 11.3 per cent by September 2015. The regulatory requirement for CRAR is 9 per cent for 2016. The decline in capital positions at aggregate level, however, was on account of deterioration in capital positions of PSBs. While the CRAR of the scheduled commercial banks (SCB) at 11.3 per cent as of September 2015 was satisfactory, going forward the banking sector, particularly PSBs will require substantial capital to meet regulatory requirements with respect to additional capital buffers.

In order to make the PSBs and RRBs compliant to the Basel III norms, the government has been following a recapitalisation programme for them since 2011–12. A High Level Committee on the issue was also set up by the government which has suggested the idea of ‘non-operating holding company’ (HoldCo) under a special Act of Parliament (action is yet to come regarding this).

Meanwhile, the GoI has been recapitalising (since 2011–12) the PSBs to make them capital compliant. The recent capital infusions into the PSBs are as given below—

(i) In 2014-15, infused with Rs. 6,990 crore. This capital infusion was based on some new criteria— asset quality, efficiency and strength of the banks.

(ii) During 2015–16, the government released Rs. 19,950 crore to 13 PSBs

(Economic Survey 2015–16).

(iii) For the year 2016–17, Rs. 25,000 crore has been purposed for the purpose (Union Budget 2016–17).

(iv) For the fiscal 2017–18, Rs. 10,000 crore has been provisioned (Union Budget 2017–18). The budget has committed additional allocation as may be required.

As per the Union Budget 2017–18, the Government continues with its focus on resolution of banks’ stressed assets (NPAs). The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the SARFAESI and

Debt Recovery Tribunal Acts. Post-budget, the Government hinted to set up an agency to look into the ‘twin balance sheet’ problem India is faced with. Banks’ NPAs crisis is supposed to get solved (technically), once such an agency is set up by the Government.