RBI says Rs 7,940 cr not enough for state banks

THE Reserve Bank of India (RBI) on Thursday highlighted that the Rs 7,940 crore earmarked for recapitalisation of public sector banks in the Union Budget for this fiscal is not sufficient and has asked the finance ministry to increase the allocation as banks are under stress due to the increase in bad loans.

"We have been suggesting to the finance ministry from time to time that public sector banks need more capital than what the Budget has indicated. So, we have been raising this issue at various discussions and forums and it was also formally written by Reserve Bank of India," RBI deputy governor S.S. Mundra said here.

"We have done some broad calculation for entire part of Basel-III committee implementation... What we are trying to indicate is that at this point of time because of certain stress on the book, some capital would be consumed for cleaning up the books," Mundra explained.

He said that cleaning is vital because when growth returns, capital would be needed to support it. Growth can be well supported with a cleaner balance sheet rather than with a stress on books. "That is the whole idea of increased capital. It can partly help to clean the balance sheet. Make the balance sheet ready to support when growth returns; additional capital will support the growth also," he said.

The RBI has also made out a case for developing better strategies to deal with the problem of nonperforming assets (NPAs) as hiding them would aggravate the situation for the banks as well as borrowers. "An account becoming NPA is not a sin. The time has come that it would be a better strategy that if there is a weakness in the account, rather than postponing or hiding the problem either on the part of banks or borrowers, it is important that the bank recognises the NPA and then extends a helping hand," Mundra told journalists.

The issues related to NPAs and the need to reduce interest rates was discussed by an RBI team led by governor Raghuram Rajan with Union finance minister Arun Jaitley.