InvestorQ : Why has the CAG called for a special audit of the PSU banks?
diksha shah made post

Why has the CAG called for a special audit of the PSU banks?

Khushi Patel answered.
1 year ago

India’s supreme public audit institution, the Comptroller and Auditor General or CAG has written to the Ministry of Finance seeking performance audit of the PSU banks. This performance audit will pertain to the period they were recapitalized. In the last few years, banks have been heavily recapitalized by the government just to make them viable.

Consider some of the numbers here. The government had recapitalized Indian banks to the tune of Rs.90,000 crore in 2017-18 and it had infused fresh capital into banks to the tune of Rs.106,000 crore in 2018-19. Even in 2019-20, bank recapitalization was as huge as Rs.70,000 and in the current fiscal 2020-21, the government has allocated Rs.20,000 crore.

If you add up these numbers, it sums up to a total of nearly Rs.300,000 crore infused into bank capital in the last 4 years. The point made by CAG is that entire idea of the government allocating budgetary funds to recapitalize the banks was to ensure that they have an opportunity to get their business back on track and turn profitable.

According to the letter written by the CAG to the Finance Ministry, the idea of the audit will be to evaluate the impact of the recapitalization in terms of performance improvement of these banks. The evaluation of the banks will be done on the basis of return on assets or ROA, return on equity or ROE as well as on a variety of growth parameters.