The government plans to infuse Rs 70,000 crore in the next few years, but PSU banks would need at least Rs 1.8 lakh crore by FY19
The government plans to inject about Rs 70,000 crore to public sector banks in the coming couple of years to help them boost their capital and ensure their capital adequacy is higher than the minimum required level, the pre-budget Economic Survey said on Friday (26 Friday).
"Given the deterioration in asset quality and gradual implementation of Basel III, banks will have to improve their capital positions to meet unforeseen losses in future," said the report lead-authored by chief economic adviser Arvind Subramaniam.
Public sector banks will require about Rs 180,000 crores over four years to 2018-19 from all sources including internal generation to meet their capital adequacy requirement. In the current financial year the government has so far given Rs19,950 crores to 13 public sector banks to help meet capital adequacy.
Most state-run banks are likely to find it tough to raise capital especially selling shares as high levels of non-performing assets (NPAs) have eaten into their profits, sending their share prices plunging. Shares of some of the leading public sector banks have declined between three-fourths to one-third of their value. Even banks such as State Bank of India, Punjab National bank, Bank of Baroda, Bank of India saw their share prices plunge to less than half their 52-week high.
Banks are in a peculiarly difficult situation as the Reserve Bank of India is almost pushing them to clean up their NPAs by the end of financial year that begins April 1, while demand for loans remains muted, economic recovery in doldrums and global economic climate volatile and very uncertain.
Industry body Confederation of Indian Industry welcomed the survey focus.
"CII has highlighted the need for special attention to the twin balance sheet problem of the impaired financial position of public sector banks and some corporate houses," said Chandrajit Banerjee, director general.
"We are very happy to see that a significant section of the commentary in the Survey is dedicated to this aspect and the 4Rs: recognition, recapitalisation, resolution and reform have been stated as the strategy to deal with the problem, which has been holding up growth and especially private sector investments."
Gross bank credit over the past year grew at just about 10 per cent or so, which is much lower than the usual levels. Bank credit to industry grew at 5.3 per cent, while that to services by less than 7 per cent and agriculture saw a downturn, the report said.
Only the saving grace was from increase in personal loans, which grew at a healthy 16 per cent in December 2015.
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Government To Give Rs 70,000 Crore For Banks Recapitalization
Reviewed by sambasivan srinivasan