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`PSBs should tighten appraisal, post-disbursal monitoring'

Sarbajeet K. Sen

NEW DELHI, March 7

BEING in-charge of the Departments of Banking and Insurance, besides the Expenditure Department, the Minister of State for Finance, Mr. Balasaheb Vikhe Patil, has the onerous task of steering the next round of financial sector reforms. In an exclusive in terview to Business Line, Mr. Patil spoke on some of the issues relating to the banking sector as announced in the Union Budget for 2000-01.

The Union Budget has made its intentions clear of allowing banks to access the capital market to bring down the Government holding to below 51 per cent. Have you made any assessment of how much capital public sector banks would require immediately after?

We have announced the broad policy framework whereby the floor level for Government holding in public sector banks would be fixed at 33 per cent. Once the law is amended, the banks would access the capital market depending on their needs.

At present, the banking system caters to roughly 30 per cent of the credit needs of the market. To be able to meet the requirement gap, PSU banks need to raise additional capital to maintain the capital adequacy stipulation in the wake of expansion of bu siness.

According to our estimates, PSU banks could raise up to Rs. 10,000 crores after the law is amended. This estimate does not include the capital requirements of the State Bank of India.

The estimates are made on modest premia assumptions. However, if the market is good and the bank shares command a good premium, the amount will naturally be higher.

We have to be careful to ensure that the bank issues are properly timed. The issues should be staggered to maintain public interest in the shares. We can't go all at one time.

However, while the Government is keen to see that the banks get better value for their shares, we are also keen that the bank shares remain within the reach of the common man. Only then would we be able to ensure that the `public character' of the banks, as promised in the Budget, is maintained.

What are your plans for the weak banks?

We will recapitalise the weak banks only after they prepare acceptable restructuring packages. One of our primary concerns regarding weak banks is that of tackling NPAs. A solution to the issue could substantially improve the health of these banks.

However, while drawing up plans to recover NPAs we have to ensure that the customers of the banks are not unduly harassed. What we would like to see is that the banks maintain a high degree of financial discipline, which would include improving their app raisal mechanisms and proper post-disbursal monitoring.

What are the measures being planned for Indian Bank, which appears to require some immediate help?

There has been some improvement in the performance of Indian Bank. We would have to work out a plan for it. Nothing has been finalised as yet.

Do you think that the working of institutions such as the Board for Industrial and Financial Reconstruction (BIFR) needs to be looked into to improve NPA recovery?

We are working on a plan to amend the Sick Industrial Companies Act (SICA). Our ultimate goal is to ensure that institutions like the BIFR are productive and result-oriented. The past experience of these institutions has not been good. It is felt that th ey have not served the purpose for which they have been set up.

However, it would be unfair to say that the BIFR has done nothing to justify its mandate. It has done substantial work on reducing industrial sickness. We feel that some corrective measures need to be adopted. There are a number of suggestions before us and we are working on them.

Is the repeal of SICA one of the suggestions?

It is very easy to repeal an Act. But to enact a new one needs a lot of effort. What we would like to ensure is that institutions such as the BIFR work in a time-bound manner and have an action-oriented programme. We must, however, appreciate the fact th at the BIFR is a quasi-judicial body which is expected to adopt judicial norms in its functioning. This leads to some delays in the normal course.

We should understand that there is a need for reorganising the entire system of rehabilitating sick companies with a view to improving the recovery of loans by banks and to have a positive effect on the viability of projects. In doing so, we should try t o adopt a system which is friendly to both industry and the banking system.

What are your plans for restructuring of the Industrial Finance Corporation of India?

I feel that IFCI is a good institution. It is just that during the course of its history it ran into some problems because of several factors. We have to work to rectify the problem and help it regain its health.

Pic.:Mr. Balasaheb Vikhe Patil, Minister of State for Finance.