The office of Comptroller & Auditor General (CAG) may soon start examining the recapitalisation accounts of the public sector banks (PSBs) that have received government funds to meet their Basel III norms. The national auditor is said to be presently working on evolving the internal guidelines to decide on the terms of the audit, the process to be followed, etc.
The Finance Ministry is estimated to have infused over ₹85,000 crore (2011-16) in PSBs over the last five years. It is believed that in the last two years some of the PSBs have used the money mostly to absorb losses on account of the steep rise in bad loan provisioning. It is because of this that an auditing of their recapitalisation funds has become imperative.
Tentatively, the auditor may be expected to look at whether the money given by the government (Finance Ministry) to these banks as part of recapitalisation has been properly utilised. Since it is government money, the CAG is within its rights to audit it. Besides, it also forms part of auditing the Finance Ministry’s accounts.
The CAG proposes to complete the audit and submit its report during the 2017 Monsoon Session of Parliament.
Further, the Finance Ministry has been annually altering the criteria for deciding about the quantum of capital infusion into various banks, making it difficult to assess how effectively banks have deployed the capital.
For instance, this year it has decided to base the capital infusion on the compound annual growth rate (CAGR) of credit for the last five years and banks’ own projections of credit growth as well as growth potential.
SBI, Indian Overseas Bank, Punjab National Bank, Bank of India and Central Bank of India figured at the top of the list. But, barring SBI, which has delivered an annual loan growth of 14 percent in the last five years, others have not shown potential for growth.
The Central Bank of India and the Indian Overseas Bank, for instance, delivered only 7-8 per cent growth (annual) in loans over the past five years.
Under the Indradhanush plan, the Centre has proposed to infuse ₹70,000 crore of capital between 2015-16 and 2018-19. It arrived at the figure by assuming a 12 per cent credit growth in 2015-16 and 12-15 per cent growth for the subsequent years.
But credit growth for the entire banking sector has been languishing at a decadal low level of 8-9 per cent for over two years now. For PSBs, the growth has been more painful, slipping to about 3 per cent in 2015-16.
On account of the mandatory cleaning up of their balance sheet by end-March 2017, many PSU banks have been consolidating their loans and turning averse to corporate lending. Indeed, the loan book has shrunk for many lenders in the last one year.
The Bank of Baroda, for instance, has seen its loan book shrank by 10 per cent in 2015-16 after registering a modest growth of 7.8 per cent in 2014-15.