Budget 2019 proposes Rs 70,000 crore towards recapitalisation of public sector banks

Source: financialexpress.com

By Mitali Salian

Budget 2019 India: The Union Budget has proposed setting aside Rs 70,000 crore in the current financial year towards recapitalisation of public sector banks (PSBs) with a view to boosting credit, which has been growing at around 13% year-on-year (y-o-y).

Over the last couple of years, overall business growth has largely suffered as concerted efforts by banks towards clean-up of their balance sheets meant most of them ran short of capital to even meet capital adequacy norms, while raising capital from markets remained largely unviable.

“Having addressed legacy issues, public sector banks are now proposed to be further provided Rs 70,000 crore capital to boost credit for a strong impetus to the economy,” finance minister (FM) Nirmala Sitharaman said in her Budget speech.

The Nifty PSU Bank Index rose for a third consecutive session, closing up 0.2% at 3303.35, also highest since May 28.

Former State Bank of India chairman Arundhati Bhattacharya told CNBC TV18 she believes about half the proposed infusion or about Rs 30,000 crore could be considered growth capital.

Bhattacharya further added, “But I think Rs 70,000 crore is a little more than what the market was expecting. Market was expecting around Rs 50,000 crore. So, obviously they have considered some amount of growth capital, not only regulatory capital. So, that’s a good thing.”

While the Union budget for FY19 made no mention of recapitalisation, earlier this year, the Union government approved capital infusion to the tune of Rs 48,239 crore into 12 PSBs, with a large chunk of money allotted to banks within the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework.

Following an asset quality review (AQR) by RBI in 2015-16 that unearthed record levels of non-performing assets (NPAs) on bank books, the government has had to make several infusions into PSBs to help them cope with related provisioning and regulatory requirements.

In a reply to a query raised in the Lok Sabha on Jun 24, FM Sitharaman had said, “Over the last five financial years (FYs), PSBs have been recapitalised to the extent of Rs 3.19 lakh crore,with infusion of `2.5 lakh crore by the government and mobilisation of over Rs 66,000 crore by PSBs themselves.”

The reply also contained a break-up of the capital infused in PSBs by the government, which revealed Bank of India received the largest infusion at Rs 30,399 crore, followed by Punjab National Bank at Rs 24,342 crore. Among other banks, UCO Bank received Rs 15,773 crore, Indian Overseas Bank got Rs 15,317 crore, Corporation Bank saw Rs 15,193 crore while Allahabad Bank saw Rs 14,984 crore in infusion.

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