‘Scheme for banks not applied as envisaged’:

‘Scheme for banks not applied as envisaged’:

Recapitalisation norms not met: CAG

Context: The Centre’s Indradhanush’ scheme to recapitalize public sector banks (PSBs) based on their performance was not implemented in a manner envisaged, according to a report by the Comptroller and Auditor General of India (CAG) Introduction: The national auditor doubts that the public sector banks will be able to raise Rs 1.1 lakh crore from equity markets in the four years ending March 2019 under the government’s Indradhanush plan. Highlights of report:

• According to the CAG repot tabled in Parliament on Friday, as per the scheme, a portion of the recapitalization was to be based on the banks performance.
• The CAG report pointed out those 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.
• The parameters used to determine whether banks required capital changed from year to year and in some years the rationale for capitalizing banks was not even recorded.
• The report said that the scheme’s target of raising Rs 1.1 lakh crore from the markets by 2018-19 was not likely to be met.
• The report also pointed out that in some cases the rationale for distribution of government of India’s capital among different PSBs (Public Sector Banks) was not on record.
• The report also emphasized that 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.
• In 2015-16 and 2016-17, it was decided that 20 and 25 per cent of the capital infused, respectively, would be based on performance, CAG said. However, capital was released without considering performance due to poor asset conditions of banks after the RBI’s asset quality review in 2015—16 and failure of most lenders to meet targets.
• The criteria for fund infusion, once finalized, may be consistently applied across all public sector banks, CAG suggested.
• There should also be an effective monitoring system to ensure intended objective of fund infusion are met, CAG recommended.

Indradhanush Scheme:

• The government has launched a seven pronged plan called Indradhanush Mission to revamp functioning of public sector banks (PSBs).
• It was launched by Union Finance Minister Arun Jaitley in New Delhi.

Facts about Indradhanush Mission

• The seven shades of Indradhanush mission include appointments, de-stressing PSBs, capitalisation, empowerment, framework of accountability and governance reforms.
• It seeks to achieve the objective of economic growth revival through improving credit and minimising the political interference in the functioning of PSBs.