Budget FY23 lowers bank recap amount to Rs 15,000 crore

The government has lowered the amount set aside for bank recapitalisation to Rs 15,000 crore in the revised estimates (RE) for 2021-22 from Rs 20,000 crore in the Budget estimates (BE). There is no fresh provision for capital infusion into public sector banks (PSBs) in the Budget for FY23 amid improving capital ratios at state-owned lenders.

Bankers and analysts have seen the absence of fresh allocations for PSBs as an acknowledgement of their improving health. Rajkiran Rai G, MD & CEO, Union Bank of India, said, “The absence of capital allocation for public sector banks reaffirms confidence in the strength of the banking sector in meeting the credit needs of the economy. Overall, it is a growth oriented Budget.”

At the same time, some analysts maintained that the setting up of the bad bank and the government guarantee extended to security receipts (SRs) issued by it make for an indirect form of capitalisation. Anil Gupta, vice-president & co-group head, Icra, said while the absence of a fresh recapitalisation amount was expected, an instance of a reduction in the budgeted outlay is rare. “Last year after the Budget, the government set aside Rs 30,600 crore for SRs issued by the NARCL. Now, either banks make recoveries from the bad assets or they get money by selling the SRs in the market. So, either way, a capital outlay for banks has been made indirectly,” Gupta said.

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In a report ahead of the FY23 Budget, Icra had said PSBs’ requirement for capital was limited because of improved profitability, capital raised by them from the markets and their rolling over of additional tier-1 (AT-1) securities in FY22. Icra had named Punjab & Sind Bank as the only bank which could need additional capital and that requirement could be comfortably met through the budgeted capital.

ICICI Securities on Wednesday said in the last five years, Rs 3.3 lakh crore has been infused into PSBs. “Coupled with this, a few large PSU banks have already raised resources from capital markets and many others have announced plans to raise resources, depending on the prevailing market circumstances. Hence, this year, expectations for PSU bank recapitalisation was set lower and there was no mention about PSU bank recap in this Budget,” the broking firm said.