#Bank #nationalisation move has outlived its utility The NDA government, after campaigning for change and receiving a clear mandate, has asserted that it will not let state holding in public sector banks go below 51%. Thus, the torch of bank nationalisation, which Indira Gandhi lit more than four decades ago, continues to be carried by the BJP and its allies even though they have decimated the Congress in the recent general elections. Indian business leaders have backed Narendra Modi in the hope that he will take forward reforms but the privatisation of State-owned banks is one reform which is nowhere in sight. This policy of persisting with public sector banks (PSB) comes at a huge cost. PSBs have in the last few years seen a sharp rise in their non-performing assets (NPA) — their net NPA ratio going up from 0.94 in 2008-09 to 2.02 in 2012-13. Some of this will have to be written off, eroding their capital base, which will need replenishing. Besides, more capital is needed simply to grow. Simplifying it a little, with a capital adequacy ratio (CAR) of, say, 9%, a bank will needRs.9 more of capital for every additionalRs.100 it lends. What is more, to meet the more stringent Basel III capital adequacy norms, which are round the corner, even more capital will be needed to do the same level of business. According to one estimate, the country will need to recapitalise its banks in the next three years by a staggeringRs.3.5-4 lakh crore. This is around 30% of the entire revenue receipts projected in the 2014-15 budget and 4% of GDP.
Posted on: Thu, 16 Oct 2014 13:47:00 +0000
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