Scheme for banks not applied as envisaged’

According to a report by the CAG, the Centre’s ‘Indradhanush’ scheme to recapitalise public sector banks (PSBs) based on their performance was not implemented in a manner envisaged.

As per the scheme, a portion of the recapitalisation was to be based on the bank’ performance. However, this was not followed during disbursal of funds.
The parameters used to determine whether banks required capital changed from year to year and in some years the rationale for capitalising banks was not even recorded. Hence, the scheme’s target of raising Rs. 1.1 lakh crore from the markets by 2018-19 was not likely to be met.

Also, some banks that did not qualify for additional capital as per the decided norms were infused with capital, and in some cases, banks were infused with more capital than required.
Gross NPAs with PSBs had risen sharply in recent years, from Rs. 2.27 lakh crore as of March 31, 2014, to about Rs. 5.4 lakh crore at the end of March 2016.

In 2015, under the Indradhanush plan, the government had announced capital infusion of Rs70,000 crores in public sector banks for four years, starting from 2015-16. In the first two financial years, ₹25,000 crore had been earmarked per year with Rs10,00crores to be disbursed in each of the remaining two years. However, credit rating agencies had pointed out that the sum was insufficient as banks needed to meet Basel-III norms as well as make provisions for rising bad loans.

The mission includes the seven key reforms of appointments, a board of Bureau, capitalisation, de-stressing, empowerment, a framework of accountability and governance reforms.

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