By Ankur Mishra

Budget 2020 India: Finance Minister Nirmala Sitharaman on Saturday said that public sector banks (PSBs) could tap capital markets. The FM said a few among them (banks) would be encouraged to approach the capital market to raise additional capital. She also mentioned in her speech that government had infused about `3.5 lakh crore by way of capital into PSBs for regulatory and growth purposes. However, no announcement of further infusion of capital was made in the Budget. The minister later clarified, saying, “I have not said I will not give any money for recapitalisation… as and when there is a need we will certainly consider it.”

Public sector lender Bank of India is already considering to raise around Rs 1,500- 2000 crore via qualified institutional placement (QIP). Karthik Srinivasan, SVP & group head, financial sector ratings, Icra, said: “We expect most of the PSBs to turn profitable in FY21 and raise capital from the markets for their growth requirements.”

K Joseph Thomas, head of research, Emkay Wealth Management, said the FM encouraging banks to raise capital from the markets is a sign that additional capital may not come from the government, unless there is an emergency by which banks are not able to meet capital adequacy norms.

To safeguard banks against non-performing assets (NPAs) from the MSME segment, the FM said that the RBI had been approached for extension of window to restructure accounts till March 2021. In September 2019, Sitharaman had asked banks not to declare stressed MSME loans as NPAs till March 2020.

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In an attempt to provide tax benefit by showing losses, for soon-to-be-merged PSBs, Sitharaman proposed to make necessary amendments in the Income Tax Act. In August 2019, the FM had announced that 10 PSBs would be amalgamated into four.

Tushar Sachade, partner – financial services, PwC India, said, “In a changing control, you lose the losses as the entity is starting afresh, so government has given relaxation to public sector banks which are going to be merged, due to which they will continue to show losses in their books of accounts and avail tax benefit. The maximum time to avail this benefit according to Income-Tax Act is eight years.”