The government’s decision to provide capital to the public sector banks (PSBs) upfront will give them ‘growth capital’ apart from meeting regulatory requirements, bankers said.
Finance Minister Nirmala Sitharaman on Friday announced a host of measures to boost the slowing economy and assured to provide ₹70,000 crore in capital to the PSBs — as announced in the Budget — upfront, which will release liquidity to the tune of ₹5 lakh crore. “This will benefit corporates, retail borrowers, MSME, small traders etc,” according to a presentation made by the Finance Minister.
Many banks, which had reported the April-June earnings, saw their common equity tier-I capital depleted. These lenders will be benefited as their capital levels will improve.
“Typically, the government releases capital at the end of the financial year. So, there was not much scope to boost loan growth. If the capital is released now, loan growth for the current financial year will get a boost,” said the chief executive of a PSB.
Bankers said the ₹70,000-crore is higher than the total capital requirements projected by banks. Banks had projected their capital requirement for meeting regulatory requirement. Since the government is providing more capital then required, the additional capital will be used to fund growth.
Earlier this week, Reserve Bank of India (RBI) Governor Shaktikanta Das said he expected the government to release ₹70,000 crore in capital ‘at an early date.’
In addition, this capital will also help the PSBs which are still under prompt corrective action (PCA) framework of the RBI, bankers said.
Out of the 12 banks that were under the restrictions due to PCA, six of them were removed from theose restrictions , of which five of them are PSBs. Banks that are still under the PCA are IDBI Bank, Central Bank of India, Dena Bank, Indian Overseas Bank and two Kolkata-based lenders — United Bank of India and UCO Bank.
