CAG raps Centre on bank recapitalisation

New Delhi: The Comptroller and Auditor General of India (CAG) on Friday indicated that Centre did not follow any rationale for distributing capital among state owned banks  as part of its recapitalization plan. 

It also raised doubts over possibility of PSU banks raising about Rs 1 lakh crore from market by 2019.

“The rationale for distribution of government of India capital among different PSBs was not found on record in all cases. Some banks which did not qualify for additional capital as per decided norms, were infused with capital, a bank was infused with more capital than required while others did not receive the requisite capital to meet their capital adequacy requirements,” said CAG in its report. 

Centre infused Rs 1,18,724 crore in public sector banks (PSBs) during 2008-09 to 2016-17. 

CAG said that SBI received the maximum capital infusion of  `26,948 crore, which is nearly 22.7 per cent of the total capital infusion. IDBI Bank, Central Bank of India, IOB and BoI were also significant beneficiaries with 8.77 per cent, 8.61 per cent, 7.88 per cent and 7.80 per cent of the total capital infusion of  Rs 1,18,724 crore respectively. 

Punjab & Sind Bank and Indian Bank received the lowest capital infusion, at 0.20 per cent and 0.24 per cent of the total funds infused. Indian Bank received capital only once, in FY15. 

Central Bank and UCO Bank were given capital in eight out of nine years under audit scrutiny. CAG said that a target had been set (August 2015) for PSBs to raise Rs 1,10,000 crore from the markets by 2018-19.  

“Against this target, Rs 7,726 crore only has been raised during January 2015 and March 2017. Considering the commitment to the CCEA that the market would not be flooded by multiple banking equity issues at the same time, achievement of this target by March 2019 appears doubtful,” it added. 

There is a significant gap between book value and market value of PSB shares, with most PSBs having a lower market value which may come in the way of PSBs approaching the market for additional capital funds, said CAG. 

“In 2015-16 and 2016-17, it was decided that 20 and 25 per cent of the capital infusion, respectively, would be based on performance which was not adhered to on account of the asset quality review by RBI during 2015-16 and the failure of most PSBs in meeting their targets during 2016-17,” said the report.