Indian PSU banks have got a massive Rs 1.95 lakh crore in capital funding from the government in just the last one-and-a-half years, as the Narendra Modi-led NDA government completed its part of a proposed Rs 2.5 lakh crore recapitalisation plan during March end.
Indian PSU banks have got a massive Rs 1.95 lakh crore in capital funding from the government in just the last one-and-a-half years, as the Narendra Modi-led NDA government completed its part of a proposed Rs 2.5 lakh crore recapitalisation plan during March end. The government completed its commitment of massive bank recapitalisation into PSU banks with the injection of Rs 5,042 crore in Bank of Baroda ahead of the merger with two other lenders — Vijaya and Dena Bank.
In a bid to overcome the problem of rising bad loans in banks and to give further boost to the micro, small and medium enterprises which got severely impacted during demonetisation, Finance Minister Arun Jaitley in October 2017 had announced a mega plan of recapitalisation of banks by Rs 2.11 lakh crore over a period of two years.
Rs 1.35 lakh crore of the total capital was earmarked to be allocated by the government through bonds. As for the remaining Rs 78,000 crore, banks were supposed to raise Rs 58,000 crore from markets, while the government was to provide the rest by budgetary support.
In FY 2017-18, the government had injected Rs 88,000 crore in banks, including the budgetary support portion and bonds after the announcement of Rs 2.11 trillion bank recapitalisation in October. In the next financial year 2018-19, the government provided the remaining Rs 65,000 crore of the proposed recapitalisation. However, the banks could not raise their own portion of money via markets, leading to the government providing for an additional Rs 41,000 crore.
Its purpose for enhancing capital infusion for this year was to help the banks under RBI’s prompt corrective action to meet regulatory capital requirements and also help non-PCA banks which were on the verge of falling under PCA.
According to banking sources, the government is not keen on infusing further capital into banks in the next fiscal and expects three to four strong banks to raise capital from the market. The state-run lenders have recovered more than Rs 98,000 crore in the first three-quarters of last fiscal FY19 through the resolution of bad loans and further recovery from the resolution of these bad assets will help the banks in raising capital and mitigating their dependence on government’s capital. All in all the banks have recovered Rs 3 lakh crore since 2015.
Earlier, there were 11 banks under RBI’s PCA framework including UCO, Indian Overseas Bank, OBC, Bank of India and Allahabad Bank. Under PCA, the banks are restricted to do big-ticket credit sanctions, branch expansion, dividend payouts and increasing remuneration of CEO. With the help of government’s capital, five banks have been able to come out of it and the next five banks may come out of it by the end of next year, according to a government source who didn’t wish to be quoted.
Besides bolstering the ailing banks, the other reasons for the government to infuse capital on such large scale were to promote digital banking system, implementing financial inclusion through its schemes like Jan Dhan and Pradhan Mantri Mudra Yojana in the country and to help farmers in meeting their production credit requirements in a timely and hassle-free manner by introducing Rupay Kisan Credit Card.