A Few Healthy Banks Better Than Many Weak Ones, Says Vinod Rai

Its because of scarcity of board-level supervision that banks have failed to build a team of knowledgeable officers.

Smaller public sector banks with weaker balance sheets should be merged with the healthier ones, Vinod Rai, chairman of the Banks Board Bureau, told Bloomberg TV in in an interview.

Rai, who heads the three-member panel set up last year to streamline operations at public sector banks, said the government is keen on consolidation at state-run banks.

Vinod Rai, Chairman, Banks Board Bureau The government has shown its intent to consolidate by taking on SBI (State Bank of India Ltd) issue.

Bad Bank

The government is also contemplating a bad bank and a decision will be taken soon, Rai said. One of the main conditions for the bad bank to be created is that it should be capable of handling assets transferred to it, he said.

A bad bank has been widely discussed, especially since the annual Economic Survey proposed the a central Public Sector Asset Rehabilitation Agency (PARA). The finance ministry has pegged stressed assets at about 16.6 percent of the total loans in India, one of the highest among the major economies.

Capital Infusion

The government has stuck to its earlier commitment of infusing Rs 10,000 crore in public sector banks in financial year 2017-18. Rai, who earlier said the amount is sufficient, reiterated that public sector banks have other avenues to increase capital, including rights issues or raising funds through a mix of debt and equity.

These could be used to ensure that the regulatory amount required to confirm to Basel-III norms will be fulfilled.

(This article was first published on BloombergQuint.)