Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Saving the banks

On the govt's plan to infuse Rs70,000 cr into state-run banks over the next four years

When finance minister Arun Jaitley provided less than 8,000 crore in the budget this year for recapitalization of public sector banks, there was a moment of disbelief. What the banks need in the next four years is at least 1.8 trillion and the budgeted sum was like the proverbial drop in the ocean.

On Friday, the government moved a step closer to a realistic level of support when it promised 70,000 crore for these banks spread over the next four years. Banks will get 25,000 crore this fiscal year and in the next.

But 70,000 crore is still less than half the money that banks need. They will have to raise 1.1 trillion from the markets. Weaker banks may be unable to attract investors, who will shy away from lenders with badly stressed balance sheets.

It is important for the banks to work towards regaining their health, beginning with better lending and risk management practices, before they seek to raise money.