The asset-trading platform envisaged by the Sunil Mehta Committee will allow smaller public sector banks to offload large corporate exposures and focus on specific niches in the retail, small and medium enterprise and agriculture segments.

Speaking to BusinessLine , Mehta said about five to eight of the 21 PSBs could become ‘money centre banks’ while the rest can become niche banks. Money centre banks are those that lend to governments, large corporates and other banks.

The suggestion to re-orient loan portfolios of small PSBs was first made in January 2015 at a two-day retreat ‘Gyan Sangam’ organised by the Finance Ministry for banks and financial institutions. It was then proposed to identify PSBs with a potential for portfolio rationalisation, defining the segment/ sector/ product focus for each of the identified banks, and creating a detailed portfolio re-orientation strategy (exit/ entry) to optimise capital. However, not much headway could be made on this front until now.

Vibrant platform

Mehta, Head of the ‘Committee for setting up an Asset Reconstruction Company and/or Asset Management Company for faster resolution of PSBs stressed assets’ and also Non-Executive Chairman of Punjab National Bank, said: “In most developed markets you have an asset trading platform. In the Indian market you basically sell (loan) portfolios. So, a bank buys a portfolio (a housing loan portfolio or a priority sector lending portfolio, or an auto loan portfolio) from another bank. If you create a vibrant asset trading platform and you can bundle the assets in there and a rating agency rates those assets, then you can actually move assets from one bank or one institution to another bank.”

Mehta said many of the smaller banks — some of which may be also under Prompt Corrective Action (PCA) — have very good brand equity in their respective markets. “They have liability generation that is taking place. They can play a niche bank role there (in their area of operation). They can play retail, they can play liabilities, do some affordable housing (create assets with lower risk weights and capital requirements),” explained the PNB Chairman.

And if a PSB has a corporate portfolio which it doesn't want to focus on, it can slowly move the portfolio through the asset trading platform, which will allow a market price to be discovered, he said.

Pointing out that developed markets have many more banks/ non-banking finance companies than India has, market experts feel the movement of assets as envisaged by the Mehta committee may obviate the need for consolidation among PSBs.

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