Bulk of recapitalisation funds may be infused in banks this week

By: | Published: July 12, 2016 6:42 AM

With stricter provisioning for non-performing assets (NPAs) by public sector banks (PSBs) under RBI directive, the government will likely infuse bulk of R25,000 crore budgeted for recapitalisation of the banks this week.

black moneyAfter the Q4FY16 results, PSBs made a representation about their capital requirement taking into account sharp rise in NPAs and growth projections. (Reuters)

With stricter provisioning for non-performing assets (NPAs) by public sector banks (PSBs) under RBI directive, the government will likely infuse bulk of R25,000 crore budgeted for recapitalisation of the banks this week.

“We are working out the details (of the capital infusion),” a senior official said. The news of capital infusion lifted the

Nify Bank index by 2.08% to 18,390.95 on Monday.

After the Q4FY16 results, PSBs made a representation about their capital requirement taking into account sharp rise in NPAs and growth projections.

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The stressed loans (gross NPAs and restructured loans) of PSBs stood at R7.33 lakh crore or 14.34% at the end of March 2016 after the Reserve Bank of India (RBI) started the process of asset quality review (AQR) to ensure banks clean up their balance sheet. This has taken a toll on PSBs, which have posted a net loss of R17,991 crore in FY16 as against a net profit of R30,869 crore in the previous year.

As a consequence, the loan growth of the PSBs, which account for 70% of loan assets in the domestic banking industry, fell to 4% in FY16 from 7% in the year ago period.

To bail out the PSBs, the Centre had announced a 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 as well. It will infuse R10,000 crore each in FY18 and FY19.

In view of the PSBs’ results for FY2016, Moody’s analysis recently suggested capital requirements of about R1.2 lakh crore for its 11 rated public sector banks, far higher than the remaining R45,000

crore, included in the government’s plan for capital distribution to the banks until FY19.

Finance minister Arun Jaitley has reiterated many times that the government was ready to provide more capital to the PSBs over and above R25,000 crore budgeted for the current fiscal year, if needed.

Poor asset quality and weak capitalisation restrict the lending capacity of PSBs, thereby contributing to slower pace of economic revival in the country, analysts say.

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