Centre seeks Rs 41,000 crore more for public sector banks

The government on Thursday sought Parliament’s approval for supplementary grants worth Rs 41,000 crore to infuse fresh capital into ailing state-run banks in the current fiscal. The additional capital could help as many as five such state-run banks exit the prompt corrective action (PCA) framework that mandates them to pare lending to companies and cut concentration of loans to certain sectors.

Eleven banks were put under the PCA framework by the Reserve Bank of India between February 2014 and January 2018.

The government had budgeted Rs 65,000 crore for infusion into state-run lenders through recapitalization bonds this fiscal, of which Rs 42,000 crore is still to be allotted. With the additional Rs 41,000 crore of capital infusion by March 31, the government will be infusing a total Rs 83,000 crore into state-run banks this year.

The capital infusion will be utilized to ensure that the better-performing banks under the PCA framework meet their regulatory capital norms and non-PCA banks do not breach the threshold. It is also expected to provide regulatory and growth capital to the entity formed by the merger of Bank of Baroda, Dena Bank and Vijaya Bank.

“The recognition of NPAs, a process that started in 2015, is almost complete. The last quarter has already shown that there is improved performance. Therefore, now the downward slide in the NPAs would commence,” finance minister Arun Jaitley told reporters.

“This entire exercise will also lead to the improvement of lending capacity of



banks.”

Gross NPAs of state-run banks have started declining after peaking in March 2018, registering a drop of Rs 23,860 crore in the first half of the current fiscal while they made a recovery of Rs 60,726 crore during the same period, which is more than double the amount recovered from a year earlier.

“The state-run banks are showing tremendous improvements in terms of recognition, provisioning, recovery and reforms. Therefore, this is the time we empower them and equip them with capital so that banks are ready to support growth of the fastest growing economy,” said Rajeev Kumar, secretary, department of financial services.

“Whichever PCA banks have shown better performance in terms of reduction in NPAs and improvements in return on assets will be provided additional funds. Under this assessment, we have decided to provide capital to four-five PCA banks, which will help them get out of the PCA category,” said Kumar.

Considering that the banks were not able to raise budgeted capital from markets under the originally envisaged recapitalization plan of Rs 2.11 lakh crore, the announcement of additional Rs 41,000 crore recapitalization bonds was a positive one as it would address the capital requirements of state-run banks, said Anil Gupta, financial sector ratings head at Icra Ltd.

“In our view, negative return on asset is a backward-looking criteria. If the bank has adequately provided on its NPAs and also has been capitalized, then the future earnings will improve for the bank,” he added.