Report No.28 of 2017 - Performance audit Union Government Recapitalisation of Public Sector Banks Reports of Ministry of Finance

Overview

The  Report  contains  the  results  of  the  Performance  Audit  on  Recapitalisation  of  Public  Sector  Banks  (PSBs) over  the  period  2008-09  to  2016-17, wherein GOI, as the majority shareholder, had infused capital of ` 1,18,724 crore  in the PSBs.

Audit  noticed  that  the rationale for distribution of GOI capital among different PSBs was not found on record  in  some  cases  and  the  Department  of  Financial  Services  had  signed  (February / March 2012) MoUs  with  PSBs  for  performance  linked  capital  infusion, however, MoUs were  not  adhered  to. 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.  Even as a target had been set (August 2015) for PSBs to raise ` 1,10,000 crore from the markets by 2018-19, ` 7,726 crore only has been raised during January 2015 and March 2017.

Audit analysed recapitalisation of PSBs by segregating them into two categories, I and II.  Audit noticed that the average ROA, ROE and rate of growth of advances has, in general, been lower in case of category II PSBs compared to category I PSBs. It was also noticed that the average capital adequacy ratio of category II PSBs was
consistently lower than that of category I PSBs.

Audit noticed that Gross NPAs of PSBs surged from ` 2.27 lakh crore (31 March 2014) to ` 6.83 lakh crore (provisional) at the end of March 2017 and there were material differences (beyond 15 per cent) between NPAs recognized by 12 PSBs and RBI leading to lower recognition of provisions and hence over-projection of net profits. The average provision coverage ratio of PSBs has generally been on the decline over 2011-12 to 2016-17. 

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