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  1. Union Budget 2017: Arun Jaitley looks to add colour to PSBs, through Rs 10,000 allocation under Indradhanush

Union Budget 2017: Arun Jaitley looks to add colour to PSBs, through Rs 10,000 allocation under Indradhanush

Under Indradhanush, govt will inject `10,000 crore into public sector banks in FY18, and more will be provided if required

By: | New Delhi | Published: February 2, 2017 3:30 AM
Public sector banks require R1.8 lakh crore capital by FY19 and the government, under Indradhanush, had announced R70,000 crore infusion in tranches till FY19. Public sector banks require R1.8 lakh crore capital by FY19 and the government, under Indradhanush, had announced R70,000 crore infusion in tranches till FY19.

In allocating R10,000 crore for recapitalising public sector banks (PSBs) in FY18, finance minister Arun Jaitley has stuck to estimates under the Indradhanush plan. However, he assured that the government will infuse more capital if required.

Lenders were expecting capital infusion of close to R25,000 crore considering that their balance sheets have been strained by accumulation of non-performing assets (NPAs). RBI data showed that 9.1% of bank loans turned bad as on September 2016.

Public sector banks require R1.8 lakh crore capital by FY19 and the government, under Indradhanush, had announced R70,000 crore infusion in tranches till FY19. Interestingly, of R25,000 crore promised in FY17, the government has decided to infuse R22,915 crore in 13 PSBs, of which only 75% has been released.

However, industry experts remained sceptical to Jaitley’s capital infusion proposal, since the quantum of bad loans has risen substantially since Indradhanush was announced in August 2015. “Public sector banks expected and needed way more than R10,000 crore. While on one hand banks are lowering interest rates to attract borrowers, they should have adequate capital under Basel III as well,” said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services.

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Karthik Srinivasan, senior vice-president, ICRA, said the sum is paltry, given the challenges faced by the banking industry. According to him, while banks have the option of tapping the equity markets, it will depend on investor sentiment, which considering performances of PSU banks in the last few quarters remain tepid. “Through the AT1 route, banks raised R25,000 crore in the April-December period of 2016,” he added.

Some bankers see silver lining in Jaitley’s assurance for more capital if required. “See, this is just R10,000 crore to begin with and I am sure banks will get more depending on their performance,” said Arun Tiwari, chairman and managing director of Union Bank. He explained that once the bad loan situation improves after six to eight months and accounts get upgraded, banks would be able to reverse a substantial amount of provisions.

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