Govt to infuse Rs22,915 crore in 13 PSU banks

New Delhi/Mumbai: State Bank of India and 12 other state-run lenders, struggling with rising bad loans and losses, are set to get ₹ 22,915 crore in capital as the government seeks to boost loan growth in Asia’s third-largest economy.

The first instalment of the funds is being released to provide liquidity support to the banks and help them raise funds from the market, the finance ministry said on Tuesday. The remaining amount, linked to the banks’ performance, will be released later.

Finance minister Arun Jaitley had committed ₹ 25,000 crore towards capital infusion in state-controlled banks in this year’s budget, the same as last year, but had promised more funds depending on their requirements.

According to the latest announcement, State Bank of India has been allocated ₹ 7,575 crore, Indian Overseas Bank ₹ 3,101 crore, Punjab National Bank ₹ 2,816 crore, Bank of India ₹ 1,784 crore, Central Bank of India ₹ 1,729 crore, Syndicate Bank ₹ 1,034 crore and UCO Bank ₹ 1,033 crore.

Other state-run banks that received capital support included Canara Bank ( ₹ 997 crore), United Bank of India ₹ 810 crore), Union Bank of India ₹ 721 crore), Corporation Bank ₹ 677 crore), Dena Bank ₹ 594 crore) and Allahabad Bank ₹ 44 crore).

“The provision of bank capital is most welcome and is very timely. We are hopeful that such provision of capital will help the banks in increasing lending, raising additional funding and cleaning up their balance sheets,” said Arundhati Bhattacharya, chairman of State Bank of India.

Analysts are sceptical. They say the budget allocation was too low, given that state-run banks have reported record losses and a surge in stressed assets.

Total stressed assets of state-run banks as of 31 March were at 14.5% of total advances. This may increase, warned a recent report released by the Reserve Bank of India (RBI).

The gross non-performing asset (NPA) ratio of state-run banks may rise to 10.1% by March 2017 from 9.6% as of March 2016, RBI’s financial stability report said, warning that under a severe stress scenario, it may rise to 11% by March 2017. Further, their capital adequacy may also fall to a record low of 10.3% by March 2017, as against 11.6% as of March 2016.

State-run banks have seen their asset quality deteriorate and profitability suffer after RBI pushed lenders to classify visibly stressed assets as NPAs after an asset quality review in 2015-16. As a result, bad loans of the 40 listed banks surged to ₹ 5.8 trillion. The losses also mounted with state-run banks reporting a loss of ₹ 23,493 crore in the quarter ended 31 March and ₹ 15,064 crore for fiscal 2016.

The finance ministry statement said that the capital infusion exercise for the current year is based on need as assessed from credit growth over the past five years, banks’ own projections of credit growth and the growth potential of each public sector bank.

“Consequent upon the above exercise, 75% of the amount collected for each bank is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” it said.

“The total amount allocated for this year is ₹ 25,000 crore, and ₹ 5,550 crore which was pending distribution last year has also been added to this. ₹ 22,915 crore is about 75% of this total amount which is now being given to banks. The amount will come in handy this year as many banks are hoping to expand their loan books after a break,” said a senior public sector banker on condition of anonymity.

The capital requirement of banks is much more than what the government has budgeted for, said Rakesh Shinde, an analyst at Asian Market Securities.

“The government plans to provide ₹ 70,000 crore over four years but the total requirement is much more. RBI’s dispensation announced earlier this year unlocks another ₹ 40,000 crore in capital. But it still leaves the banks’ short by around ₹ 80,000 crore,” Shinde said.

“Asset quality issues are going to continue in FY2017 and banks will not be able to plough back their profits, given the losses they have reported. Whatever income will be there will accrue to capital only from FY18 or FY19,” he added.

As part of the four-year capital infusion plan, the government had committed to infuse ₹ 25,000 crore each in 2015-16 and 2016-17 and ₹ 10,000 crore each in 2017-18 and 2018-19.