The government may infuse Rs 20,000-30,000 crore in public sector banks later this week as it plans to front-load a plan in view of the recent surge in their non-performing assets (NPAs), sources told FE.
Since the FY17 Budget has provided for R25,000 crore of fund infusion, the Centre may have to seek additional R5,000 crore through supplementary demand for grants.
With stricter provisioning for NPAs by public sector banks under the directive of the Reserve Bank of India, their stressed assets (gross NPAs and restructured loans) stood at R7.33 lakh crore, or 14.34% of gross advances at end-March, compared with R82,861 crore, or, 4.62% of gross advances, for private banks.
“So, there is a need to front-load capital infusion this year,” a senior official said. As PSBs have provided for about 55% of gross NPAs, against the RBI guideline of 70%, their profitability and capital adequacy could come under pressure if more stressed assets slip into NPA, he added.
Gross NPA of PSBs stood at Rs 4.76 lakh crore (9.3% of gross advances) in FY16, against R2.67 lakh crore (5.43%) a year ago.
PSBs, which account for three-fourths of the banking sector assets, recently made a representation to the finance ministry about their capital requirement taking into account the sharp rise in NPAs and growth projections.
The RBI-mandated asset quality review to ensure banks clean up their balance sheets has taken a toll on government-owned lenders. Their loan growth fell to 4% in FY16 while the same for their private peers grew by 25%.
To bail out the PSBs, the Centre had announced R70,000-crore capital infusion plan spread over four years. As per the plan, it infused R25,000 crore in FY16 and has budgeted a similar amount for FY17. The government will infuse R10,000 crore each in FY18 and FY19.
Separately, PSBs were told to mobilise about R1.1 lakh crore capital from markets during the four years. Analysts doubt the ability of the banks to raise capital at this juncture due to dip in valuations.
Poor asset quality and weak capitalisation restrict the lending capacity of PSBs, thereby contributing to slower pace of economic revival in the country, analysts have said.
