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Home >Industry >Banking >Govt seeks ₹41,000 crore more for bank recapitalisation

New Delhi/Mumbai: The government on Thursday sought Parliament’s approval for supplementary grants worth 41,000 crore to infuse fresh capital into ailing state-run banks in the current fiscal.

The additional capital could help as many as five such state-run banks exit the prompt corrective action (PCA) framework that mandates them to pare lending to companies and cut concentration of loans to certain sectors.

Eleven banks were put under the PCA framework by the Reserve Bank of India between February 2014 and January 2018.

The PCA framework kicks in when banks breach any of the three key regulatory trigger points, namely capital-to-risk weighted assets ratio, net non-performing assets (NPAs) and return on assets.

The government had budgeted 65,000 crore for infusion into public sector banks (PSBs) through recapitalization bonds this fiscal, of which 42,000 crore is still to be allotted.

With the additional 41,000 crore of capital infusion by 31 March, the government will be infusing a total 83,000 crore into public sector banks this year.

The capital infusion will be utilized to ensure that the better-performing banks under the PCA framework meet their regulatory capital norms and non-PCA banks do not breach the threshold. It is also expected to provide regulatory and growth capital to the entity formed by the merger of Bank of Baroda, Dena Bank and Vijaya Bank.

“The recognition of NPAs, a process that started in 2015, is almost complete. The last quarter has already shown that there is improved performance. Therefore, now the downward slide in the NPAs would commence," finance minister Arun Jaitley told reporters. “This entire exercise will also lead to the improvement of lending capacity of banks."

Gross NPAs of state-run banks have started declining after peaking in March 2018, registering a drop of 23,860 crore in the first half of the current fiscal while they made a recovery of 60,726 crore during the same period, which is more than double the amount recovered from a year earlier.

“The PSBs are showing tremendous improvements in terms of recognition, provisioning, recovery and reforms. Therefore, this is the time we empower them and equip them with capital so that banks are ready to support growth of the fastest growing economy," said Rajeev Kumar, secretary, department of financial services.

“Whichever PCA banks have shown better performance in terms of reduction in NPAs and improvements in return on assets will be provided additional funds. Under this assessment, we have decided to provide capital to four-five PCA banks, which will help them get out of the PCA category," said Kumar.

Considering that the banks were not able to raise budgeted capital from markets under the originally envisaged recapitalization plan of 2.11 trillion, the announcement of additional 41,000 crore recapitalization bonds was a positive one as it would address the capital requirements of public sector banks, said Anil Gupta, financial sector ratings head at Icra Ltd.

“In our view, negative return on asset is a backward-looking criteria. If the bank has adequately provided on its NPAs and also has been capitalized, then the future earnings will improve for the bank," he added.

Out of the 58,000 crore that banks are supposed to raise by 31 March 2019, they had so far raised close to 24,400 crore, Kumar said. “All the necessary approvals have been given to them to go to the market at the opportune time," he added.

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