Reserve Bank of India (RBI) has sought an additional Rs 26,000 crore from the government to be infused into state-run banks by 2018, citing that the current capital pledges may be inadequate because stressed assets have swelled. RBI has informed the government about the additional capital that will be needed by state-owned banks until 2018 as part of implementing Basel-III standards.
Due to decline in the quality of assets of banks, including PSBs (public sector banks), the government is required to make adequate provisions based on Income Recognition and Asset Classification norms prescribed by the Reserve Bank. If a bank’s profitability is insufficient, it may need capital to meet that provision.
So far in this fiscal, the government has spent Rs 20,000 crore on bank capitalisation and will infuse another Rs 5,000 crore before the end of the current financial year. The government has pledged Rs 70,000 crore toward this end until financial year 2019; Rs 25,000 crore of this in the next fiscal year. The finance ministry estimates that state-run banks will require Rs 1.8 lakh crore of additional capital in the next four financial years, of which Rs 1.1 lakh crore will have to be raised from the market by the lenders.
Banks have been allowed to bring down the government holding in them to 52%. The government has also been pressing the banks to divest non-core assets. RBI has been pushing banks to clean up balance sheets and make adequate provision for bad loans. As per finance ministry data, gross non-performing assets (NPAs) of PSBs increased by 25.19% to Rs 3.14 lakh crore at the end of September 2015 from Rs 2.5 lakh crore at the same time in the previous year.