PremiumPunjab and Sind Bank and Central Bank of India—the only lender that still faces lending curbs—are likely to be the biggest beneficiaries of the latest funding plan, though the exact quantum of support is to be decided
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NEW DELHI : The government is likely to infuse ₹15,000 crore into state-run banks in the second half of March to help the lenders meet tighter capital-reserve requirements, according to two people privy to the development.
Punjab and Sind Bank and Central Bank of India—the only lender that still faces lending curbs—are likely to be the biggest beneficiaries of the latest funding plan, though the exact quantum of support is to be decided, the people said, requesting anonymity.
The government’s massive recapitalization of banks—it has pumped in more than ₹3.10 trillion over five years since FY17—was prompted by a pile-up of soured loans that cast doubts on the survival of some lenders. The mountain of stressed assets on balance sheets crimped their ability to lend and slowed down the economy.
This year, the government allocated ₹15,000 crore in the revised budget estimates, and the entire amount may be distributed next month as the government has not provided for public sector banks’ recapitalization in the year starting 1 April, the people said, requesting anonymity.
“Public sector banks have been asked by the department of financial services to send their capital requirements for the current fiscal as it is formulating the recapitalization plan for the budgeted amount," one of the two people cited above said.
Queries emailed to a finance ministry spokesperson seeking details of the capital distribution to public sector banks remained unanswered until press time.
The government had initially budgeted ₹20,000 crore for bank recapitalization for the year but cut it to ₹15,000 crore in the revised estimates in an acknowledgement of the improving health of PSBs. The number of weak banks has drastically reduced as better recognition and provisioning for bad debt and adequate capital support from the government has helped banks to improve financials, with most now showing a rise in profitability. Even the number of banks under the Reserve Bank of India’s prompt corrective action (PCA) framework, under which the regulator imposes curbs on lending, has now come down to just one.
The finance ministry is also expected to provide capital to Indian Overseas Bank, which is among candidates identified for privatization, along with Central Bank of India. Additional capital is expected to shore up their financials and help the government realize better valuations.
In this fiscal, all 12 public sector banks have posted profits. Though the government has not budgeted for bank recapitalization in FY23, an assessment would be made for such support, depending on the health of banks’ balance sheets.
In the previous fiscal, the government infused ₹20,000 crore into five PSBs. Out of this, ₹11,500 crore was given to three banks under PCA—UCO Bank, Indian Overseas Bank, and Central Bank of India.
A big chunk of government funding has been via recapitalization bonds. Budgetary support stood at ₹34,997 crore in the five years since FY17. Banking sector experts said the improving financial health of banks would allow them to tap markets for funds, cutting their reliance on the government. Also, the setting up of a bad bank and the government guarantee extended to security receipts issued by it constitutes an indirect way of capitalization, they said.
On its part, the government is strengthening the banking segment by merging weaker state-run banks with stronger counterparts. Since 2017, this exercise has resulted in seven large and five small PSBs. The measures (based on bad loans and regional factors) were intended to help manage capital more efficiently.
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