The Union government has sought the Parliament’s nod for infusing Rs 20,000 crore in state-owned banks.

The Supplementary Demand for Grants for expenditure of the Central government tabled in Parliament on Monday stated that there will a cash outgo for “meeting additional expenditure of Rs 20,000 crore towards recapitalisation of public sector banks (PSBs) through issue of government securities.”

The government has infused Rs 3.5 trillion in PSBs in the last few years, with the previous round of recapitalisation taking place in September 2019 when the government decided to frontload a major share of Rs 70,000 crore into the banks. Most of the capital infusion has taken place through issuance of bonds which does not have an immediate impact on the government's finances but it becomes a liability on the government in the years to come due to interest payment.

Finance Minister Nirmala Sitharaman had, during her Union Budget speech for 2020-21 in February, avoided going for recapitalisation of PSBs in this financial year. However, the Budget was presented before the Covid-19 pandemic had impacted the domestic economy.

Reserve Bank of India (RBI) governor Shaktikanta Das had said in July that a recapitalisation plan for banks had “become necessary” and called for lenders to raise money in advance to “build resilience” in the financial system.

According to the RBI, the gross non-performing asset ratio of PSBs will increase to 15.2 per cent by March 2021 from 11.3 per cent a year back “under the baseline scenario”.

It remains to be seen how the government decides to distribute the recapitalisation amount of Rs 20,000 crore which is not a huge sum compared to the capital infusion plan of past few years. In 2017-18, the government had infused Rs 80,000 crore and in 2018-19, Rs 1.06 trillion through recapitalisation bonds in PSBs.

Bankers had told Business Standard last month that the capital requirement in this fiscal year may not be huge for the lenders due to a host of measures taken by the government and the RBI.

“It would not be as bad as we expected it to be. We expect a delinquency (or slippage of good loans into bad) of 5 per cent as we have seen in the past two-three years, too. If the overall credit in the system is Rs 100 trillion, the provisioning requirement for PSBs would be Rs 1 trillion and the banks make an annual operating profit of Rs 1.5 trillion,” a managing director and chief executive officer of a large-sized PSB had said.