Govt Will Infuse Rs 20,000 Cr In PSU Banks Like SBI, PNB, BoB & More: But Why?

The Government will infuse a sum of Rs 20,000 crore in public sector banks, to help them recover from the financial standstill that has affected banks amidst the coronavirus pandemic.
The Government will infuse a sum of Rs 20,000 crore in public sector banks, to help them recover from the financial standstill that has affected banks amidst the coronavirus pandemic.

The government finally seeked the Parliamentary nod for meeting additional expenditure of Rs 20,000 crore towards recapitalisation of public sector banks (PSBs), by issuing government securities.

This may happen in the fourth quarter of this fiscal year, Q4.

Government to Infuse Capital of Rs 20,000 Crore in PSBs

The Governor of RBI, Shaktikanta Das told in July that recapitalizing funds for PSBs had become the need of the hour and also asked banks to raise money to build resilience, for their own good.

Earlier, the credit rating agency ICRA had estimated that banks would require a financial cushion of Rs 46,000-82,600 crore.

However, after considering the loan restructuring scheme announced by RBI in September, ICRA has now estimated that the gross slippage rate will reduce to 3-4%, from the earlier estimation of 5-5.5%.

How will the Government Ensure Proper Deployment of this Sum?

As reported by a senior government official,

“We will not front-load capital into state-owned banks. The capital requirements for banks have been changing.

We wanted to ensure we secured Parliament nod in case we needed to infuse capital into banks after assessing their needs later this year.”

He also added that the provision taken against assessments and recovery of bad loans, stands at 80% for banks.

This recapitalisation sum would go into uplifting the banking requirements, vividly affected during the Covid pandemic.

“The good part is that the recapitalisation needs of banks will not be big this fiscal year after the loan restructuring announcement by the RBI”, as added by the official.

Government Has Infused Rs 3.5 Trillion into Banks in the Past Few Years

As suggested by RBI, banks would have to look into their working and may have to raise their capital from markets so that the capital infusion requirements from the government wouldn’t be as stressed.

If you look at the graph, the government has already infused Rs 3.5 trillion into public sector banks, since fiscal year 2015-16.

  • 2015-16: Rs 25,000 crore
  • 2016-17: Rs 25,000 crore
  • 2017-18: Rs Rs 80,000 crore
  • 2018-19: Rs 1,06,000 crore
  • 2019-20: Rs 70,000 crore
  • 2020-21: Rs 20,000 core

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 in the years to come due to interest payment.

Source: Business Standard 

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