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Sources told TOI that banks that are part of the RBI’s prompt corrective action (PCA) plan are being advised to get rid of more risky assets, which are loans to companies with weak finances. This is because the finance ministry has ruled out any fresh fund infusion beyond the Rs 65,000 crore that was announced as part of the Rs 2.1-lakh-crore re-capitalisation plan.
In addition, lenders are being pursued to aggressively sell non-core holdings, including stakes in mutual funds and insurance arms as well as real estate assets — some of which are in prime locations across the country.
Government-owned banks are in deep distress, with higher provisions pushing most of them into the red during the January-March quarter. Their cumulative losses added up to Rs 73,000 crore during the last financial year and combined bad debt has crossed Rs 8.5 lakh crore.
The high provisions have eaten up a large part of the capital base, requiring fresh addition, which can come as a contribution from the government or via fresh fund-raising. Alternatively, profit from the sale of non-core assets can come to their rescue.
While one way to conserve capital is to stop corporate lending, the government — which is the majority owner in 21 public sector lenders — does not see that as an option, especially with growth showing signs of a pick-up and investment too expected to improve in the coming quarters.
Instead, officials said sale of riskier assets is a better option, underlining that transactions would take place on commercial terms. So, smaller players such as Andhra Bank or Dena Bank — which are part of a consortium of lenders but have only, say, 5% of the exposure — are being encouraged to sell their loans to SBI or Bank of Baroda, which have a much larger presence. “It will ease the pressure and also help the larger lender consolidate its position,” said a source.
Bankers, however, said there is reluctance from larger players and without a prod from the finance ministry, things may not actually move.