The Centre is likely to announce the first tranche of the Rs 25,000 crore capital infusion for public sector banks (PSBs), planned for this financial year (2016-17). The first tranche could add up to about Rs.10,000 crore, said a source in the Finance Ministry.
The recapitalisation is aimed at shoring up the PSBs lending capacities that are restricted by poor asset quality and weak capitalisation.
Gross bad loans, as a proportion of the total advances by these banks, rose to 7.6 per cent, a 12-year high in March 2016, according to the Reserve Bank of India’s latest financial stability report released on June 28.
Impaired assets On the rise since 2012, impaired assets in the banking system are negatively affecting credit supply and are a factor dampening India’s growth outlook, global rating agency Moody’s Investors Service recently said.
PSBs account for about 70 per cent of the total banking system assets.
The banks requisitioned infusions after the finalisation of their fourth quarter results, in which, cumulatively, they had reported losses of Rs 18,000 crore in 2015-16.
The capitalisation plan proposes infusions adding up to Rs 25,000 crore in 2015-16 as well as in 2016-17, followed by Rs 10,000 crore each in 2017-18 and 2018-19.
It disbursed a total of Rs 25,000 crore to 21 PSBs in the last financial year, 2014-15.
SBI got the largest sum, Rs 5,393 crore, followed by Bank of India, which received Rs 2,455 crore.
Moody’s has said that the 11 PSBs it rates would need capital of about Rs 1.2 lakh crore until 2020.
It believes that government support will be a crucial driver of the credit outcome in potential mergers, particularly in the form of equity capital, which will be required to shore up the buffers of the acquiring bank before a merger is complete.
Budget road map
In the budget speech, Mr. Jaitley also said that the road map for consolidation among PSBs would be announced this year. The government has said its ultimate aim is to lower the number of large PSBs to 8-10 from the current 27 and that it is not averse to reducing its stake in each to up to 52 per cent.