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Business News » India News

Mergers are based on fundamentals of combined entity, says Rajiv Kumar, DFS Secretary

During a candid chat with Zee Business, Rajiv Kumar, Secretary, Department of Financial Services (DFS), spoke about prompt corrective action framework, recapitalisation of banks, the merger plan of the insurance companies and more. 

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Mergers are based on fundamentals of combined entity, says Rajiv Kumar, DFS Secretary
There has been a whopping change in the banks like the creditor-debtor relationship, said Rajiv Kumar. Image source: Zee Business

Rajiv Kumar, Secretary, Department of Financial Services (DFS), during a candid chat with Anurag Shah, Zee Business, spoke about prompt corrective action framework, recapitalisation of banks, the merger plan of the insurance companies and more. Edited Excerpts:

Q: Three public sector banks are out from the Prompt Corrective Action (PCA) framework. Let us know about the banks that may come out of the list in the recent future?
A: Their performance has helped them to come out from the PCA framework. The banks are seeing a change and correction in terms of situation and direction. The improved situation means, NPA recognition, picking them up and reduction. In fact, there is a reduction of about Rs28,000-29,000 crores and the losses has been provisioned. Provision coverage ratio has touched the mark of 68-69%. Recovery is all-time high and about Rs1 lakh crores have been recovered and we expect that about Rs1.80 lakh crores will be recovered by end of the year.

There has been a whopping change in the banks like the creditor-debtor relationship. If you have taken a loan then you will have to be responsible, adhere to it and value it. IBC has shown the path that says if you are not able to play then someone else is available to play on it. 

So, three PCAs who performed well are out of the framework and will be able to lend more, but to genuine industries. Several reforms have been put in place to eliminate false companies. That is why each one of them in the financial sector, namely the public and private banks, NBFCs or HFCs, has been made to go through the process of correction. So, the banks’ who will perform well will become a candidate who can exit.

Q: So, the banks will be recapitalised in recent futures?
A: The banks that will perform well will have 2-3 different routes for it and it is a time when they should take responsibility and start raising their own capital. Market rejig permission has been granted to them and they have the opportunity to sell their non-core assets. Besides, the government will help the performing banks in getting out of the PCA list by granting the capital requirements that will be needed for the purpose.

Q: The financial position of the three insurance companies whose merger was announced in the budget is not too good. So, should we consider that they will be capitalised before the merger, if not, then will the merger of the three companies is unlikely to happen anytime soon?
A: Merger process is on. The merger should not be considered as a merger but as a combined entity with strong fundamentals and ability to live-up with the market competition and retain a synergy in the market.
 
Q: But the insurance companies have said that they have asked for a capitalisation. Let us know about the demand?
A: It is an evolving process and they have placed their demand. It, the demand for capitalisation, will be looked upon in the process.

Watch this Zee Business video

Q: Update us on the merger proposal of the small banks?
A: See, the mergers are not planned just to club the small banks with the big ones without looking at the impact that the merger. The mergers, past and future ones, have been planned after looking on the strength of the fundamentals of the combined entity and its ability to absorb the shock of the small one. And, at the same time can emerge as a strong bank, so that the synergy and conformity prevail among themselves. 

 

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TAGS:
PCA frameworkPSB recapitalisation
Written By: Anurag Shah
Updated: Mon, Feb 18, 2019
03:13 pm
Mumbai, ZeeBiz WebDesk
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