Page 7 - BANKING FINANCE FEBRUARY 2016 ONLINE

RBI CORNER

RESERVE BANK

NEWS

RBI pondering over differential deposit insurance Dividend decisions equals

Reserve Bank of India is weighing a "The implementation of risk-based pre- to strategic business deci-
differential deposit insurance system mium has not been operationalised due
which will be linked to the risk profile to various reasons. On the other hand, sions: RBI to PSBs
of banks on the lines of rec-
ommendations by various there has been a persistent The Reserve Bank of India has said
national committees and in- demand from stakeholders that the public sector banks (PSBs)
ternational experience, the and public representatives should consider the dividend decisions
central bank said in its bi- in the recent past for a hike as strategic business decisions which
annual Financial Stability in deposit insurance cover are the main objectives of their
Report (FSR). from the current level of Rs shareholder wealth maximisation.
1 lakh.
In its financial stability report, the
Presently, deposits of only up A hike in cover without cali- central bank observed that PSBs pay
to Rs 1 lakh are insured and there have brating premium rates to the risk pro- out significant amounts as dividend
been calls by consumer groups to in- files of insured banks may exacerbate to the government and other share-
crease the minimum deposit insurance. moral hazards," RBI said referring to holders which have no relevance to
However, RBI said increasing the in- the fact that a flat deposit insurance their balance sheet strengths and
sured amount without linking it to the does not dissuade banks from taking capital planning. The RBI said the
risk may be counter-productive. more risk. payout also reveals a cross-
subsidisation by better banks.
RBI pondering over SDR provision for lenders
According to Finance Ministry data,
RBI's deputy governor S.S. Mundra said that the Re- the government received dividend
serve Bank of India is looking into a provision it intro- aggregating Rs. 4,000 crore in
duced in June to help lenders managed stressed assets. FY2015, against Rs. 6,758 crore in
According to him it was too soon to write off the debt- the previous financial year.
for-equity swap tool as a failure.
This pattern of dividend payouts is not
Strategic Debt Restructuring (SDR) allows banks to take consistent with the dividend irrel-
majority ownership of troubled firms and look for new evance theory, it added. In FY2015,
owners. It allows banks to classify the debt in question as "standard", rather the government infused Rs. 6,990
than bad, during the 18 month process. To date, SDR has been invoked in 9 crore in 9 public sector banks - State
cases but none has yet sold assets or significantly reduced debt. "It is a work in Bank of India, Bank of Baroda, Punjab
progress. You will hear...more from us on this soon," Mundra told. National Bank, Canara Bank, Syndi-
cate Bank, Allahabad Bank, Indian
Bank, Dena Bank, and Andhra Bank.

BANKING FINANCE | FEBRUARY | 2016 | 7

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