CAG punches holes in recapitalisation of PSBs

The Comptroller and Auditor General of India (CAG) has found gaping holes in the recapitalisation of public sector banks (PSBs), stating that the recovery rate of non-performing loans was in general lower than the write-off rate between 2010-11 and 2014-15.

There is a need for the Department of Financial Services (DFS) to ensure that PSBs increase the quantum of recovery vis-à-vis write-offs, the CAG said in a report tabled in the Lok Sabha on Friday.

The government auditor also found instances of lower recognition of NPAs (non-performing assets) and, hence, over-projection of net profits in 12 PSBs, where there was a material difference (beyond 15 per cent) between NPAs recognised by banks and those ascertained by the RBI.

Gross NPAs of PSBs have surged from ₹2.27 lakh crore as of March 31, 2014, to ₹6.83 lakh crore as of end-March 2017.

Although the DFS had decided that performance parameters listed in the MoUs with individual PSBs (signed in February/March 2012) would be the basis for future capital infusion, this was not adhered to in practice, the CAG said.

The CAG has recommended that an effective monitoring system be put in place to ensure fulfilment of intended objectives of capital infusion.

The Centre, as the majority shareholder, had infused ₹1,18,724 crore of capital from 2008-09 to 2016-17 in PSBs to help meet their capital adequacy requirements or based on their performance.

The estimation of the parameters based on which capital was infused altered from year to year and often within different tranches of the same year, the CAG report said.

Also, in some cases, the rationale for distribution of the Centre’s capital among different PSBs was not on record. Some banks, which did not qualify for additional capital as per decided norms, were givencapital.

While one bank was given more capital than required, others did not receive the requisite funding to meet their capital adequacy requirements.

Against the target under Mission Indradhanush of PSBs raising ₹1.10 lakh crore capital from the market between 2015-16 and 2018-19, only ₹7,726 crore could be raised from January 2015 to March 2017. “Considering the commitment to the Cabinet Committee on Economic Affairs (CCEA) that the market would not be flooded by multiple banking equity issues at the same time, the achievement of this target by March 2018 appears doubtful”, the CAG report said.

The report also highlighted that the target set in the MoUs (performance-linked capital infusion) varied substantially from the targets set in the Statement of Intent of the PSBs.

While 273 progress reports on MoUs were due from PSBs, only 21 were actually received, indicating deficient monitoring of the MoUs through progress reports.

The achievements against the MoU targets were also poor. The audit also noticed that the conditions that had been stipulated while sanctioning capital infusion in the PSBs (2010-11) were significantly different from the targets set in the statement of intent for the same period.