Divestment Of PSU Banks Would Start Around Diwali And SBI Could Be The First One

There are reports in the press regarding consolidations of public sector banks. What is the current status on consolidation?

There is nothing final yet. People are giving various suggestions and these rumours are emanating from suggestions given by different quarters. There is no formal proposal as yet on consolidation and no decision has been taken as yet on the same but various suggestions are surely coming. Once we are able to concretize some of these proposals then only I would be able to tell you on that front. As far as timeline is concerned, one of these is State Bank of India with one of its subsidiary banks and they are working on that. Also, there are various other things being discussed regarding suggestions for consolidation of various other banks also, but naming them will not be proper at this time. Once I have more details and more analysis on that front then only I will be able to tell you which banks we would take forward for consolidation.

But in absence of any clarity, there are numerous rumours doing the rounds about banks that may go for consolidation. How do you take it?

We have to understand that these rumours are quite usual and will keep on coming till something concrete is decided on consolidation.

How does the government propose to choose banks for consolidation and what would be the criteria for that?

 Actually, we have asked SBI Caps to do a study on this and once they come up with some defi ative proposal then we will take a view. You have to understand that this is a very slow process and these mergers and consolidation will be a long drawn process as there are host of issues that will be taken into account.

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What timeline has been given to SBI Caps for submitting its report on consolidation?

 We have given SBI Caps two assignments. First is the issue of recapitalization of banks and they are currently working on it. Second assignment of course is the consolidation of banks and we are hopeful that we should be getting the reports on both subjects within a month. After the Budget session of the parliament we would be getting a road map for the recapitalization of banks as we are waiting for it and it should come to us next month.

 As the government is inclined to do divestment of its stake in PSU banks, will it happen in one shot or in tranches?

It is more likely to happen in tranches based on the requirement of funds as the funds are required over a period and not just in one year, so we will have to phase it out. For this we will take nod of the Cabinet and apprise its members as to how we will move ahead on it. So far as the model of divestment is concerned, it will be a combination of some routes like FPO, some percentage may be QIPs and some of it will be retail. Till now, we haven’t finalized the numbers of banks in which divestment will happen.

When will this divestment process start and will you start with the big ones?

 Divestment of banks will start around Diwali time i.e. most likely in November. As far as the banks are concerned, it will depend on the banks that require the money most. State Bank of India, of course, needs money, so it could be the first one to go. Also, money would be raised in tranches and not in one shot, so there is no question about the size of the banks that will go for divestment sooner or later.

On recapitalization of banks, are you looking at the big banks such as SBI and PNB in the current fiscal? Also, are you going to raise the budgetary amount of Rs 11,200 crore?

Yes, it is true that they do require money this year and recapitalization of these big banks is very much possible during current fiscal. As far as budgetary amount of `11,200 is concerned, it is not required to be raised, as now we will be raising money from the market.

The problem of NPAs is getting bigger for the banks. It was reported that you are considering the revamp of debt recovery institutions. Can you explain that?

It is true that the government wants to strengthen the acts, SARFAESI Act and the DRT Act. We are going to take up some amendments into both of them to make them more effective and to give more teeth to the recovery process and to the courts also.

On the NPAs, which are the sectors that account for most of the NPAs? Is there any improvement since the last meeting the previous Finance Minister P Chidambaram had with banks in March?

Power, mining, steel, road, textiles and shipping are the sectors that account for most of the current NPAs of banks. On the recovery part, there is certainly significant improvement in terms of actual numbers, but not in terms of percentage because the problem is that the business has shrunk so percentage may look higher but actual size of NPAs has come down.

On financial inclusion, there was a suggestion for establishing payment/ deposit banks and that these services should be provided by retail and FMCG companies. Is there any progress on that front as these are successfully operating in many countries?

RBI has issued draft guidelines for these types of systems and those are getting finalized. Once these guides are finalized then it will invite application from various companies to give such services.

On the PFRDA Act, as the insurance laws (amendment) bill is going to the parliament, are you also looking at raising the FDI pension cap as it is linked with insurance sector?

Yes, it is obviously linked with the insurance cap so automatically that will also go up along with FDI limit in insurance.