Budget 2021: Banks to be recapitalised with Rs 20,000 crores

NEW DELHI: The Union Government has allocated Rs 20,000 crore towards recapitalisation of state run banks to help them meet capital adequacy norms.

The government also decided to set up asset reconstruction company and an asset management company to manage bad debt for scheduled banks, which are expected to reach record levels this year.

The asset management company which would act as a ‘bad bank’ would take problem loans of banks, try and turn them around and then on sell to investors at a reduced price if need be.

The RBI expects non-performing assets with banks to rise to 13.5% of total advances by the end of September from 7.5 per cent a year ago, according to its semiannual Financial Stability Report published last month.

“To further consolidate the financial capacity of Public Sector Banks, further recapitalization of Rs 20,000 crore is proposed in 2021-22,” Finance Minister Nirmala Sitharaman said while presenting the Budget 2021-22 on Monday.

Punjab and Sind Bank was the only bank to receive capital infusion of Rs 5,500 crore in the current fiscal year.

Sitharaman said the amendments to the Deposit Insurance and Credit Guarantee Corporation Act allow depositors to get easier and time bound access to their deposits.

“I shall move amendments to the DICGC Act, 1961 in this Session to streamline the provisions, so that if a bank is temporarily unable to fulfill its obligations, the depositors of such a bank can get easy access to their deposits,” she said.