CAG Report Findings
A report by the Comptroller and Auditor General of India (CAG) presented in Parliament on Monday revealed that the Department of Financial Services (DFS) provided ₹ 8,800 crore to the State Bank of India (SBI) for recapitalization in FY18, despite the bank not requesting such funds.
The Compliance Audit Report No. 1 of 2023 also indicated that the DFS, a department under the finance ministry, did not assess the capital requirement as per its standard practice before proceeding with the recapitalization.
Lack of Assessment and Excess Infusion
Auditor Report Sheds Light on Recapitalization Practices
The Comptroller and Auditor General of India (CAG) found that the Department of Financial Services (DFS) infused ₹ 8,800 crore into the State Bank of plaIndia (SBI) in 2017-18 for credit growth, despite the bank not requesting the funds. The SBI is India’s largest public sector bank (PSB). The CAG report also highlighted that the DFS did not assess the capital requirement as per its standard practice before carrying out the recapitalization.
Excess Capital Infusion due to DFS’s Cushion Policy
In addition to the unwarranted recapitalization of SBI, the CAG report uncovered that the DFS factored in a cushion over and above the norms prescribed by the Reserve Bank of India (RBI) when recapitalizing PSBs. This practice led to an excess infusion of ₹ 7,785.81 crore, raising concerns about the DFS’s decision-making process and adherence to RBI regulations.
Bank of Maharashtra Recapitalization Discrepancy
The report also noted that in 2019-20, the DFS infused ₹ 831 crore into the Bank of Maharashtra, against the bank’s demand for ₹ 798 crore. This decision was made to avoid surrendering ₹ 33 crore in funds. This revelation highlights potential mismanagement and inefficiency within the DFS when handling the recapitalization of public sector banks.
Recapitalization Objectives
The government recapitalizes public sector banks (PSBs) for various reasons, including credit growth, meeting regulatory capital requirements, enabling better-performing lenders under RBI’s Prompt Corrective Action framework to exit, and addressing capital requirements due to amalgamation.
Implications and Concerns
The CAG report raises questions regarding the DFS’s decision to provide recapitalization funds to SBI without proper assessment and without the bank’s request for such funds. This unexpected recapitalization and the excess infusion of capital highlight potential oversight and management issues within the DFS. The findings also call for a reevaluation of the department’s standard practices and decision-making processes regarding recapitalization exercises for public sector banks.
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