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Government Seeks To Infuse Additional Rs 41,000 Crore In State-Run Banks

The funds will enhance the government's existing bank recapitalisation outlay from Rs 65,000 crore to Rs 1.06 lakh crore in the current fiscal year.

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Government Seeks To Infuse Additional Rs 41,000 Crore In State-Run Banks

Finance Minister Arun Jaitley said a fall in bad loans will lead to a rise in banks' lending capacity


The government today moved a proposal in Parliament seeking sanction for additional recapitalisation bonds worth Rs 41,000 crore, Finance Minister Arun Jaitley told reporters on Thursday.

The funds will enhance the government's existing bank recapitalisation outlay from Rs 65,000 crore to Rs 1.06 lakh crore in the current financial year.

This would enable infusion of over Rs 83,000 crore to public sector banks within the coming few months, according to a note issued by the Ministry of Finance.

In 2017, the government had announced a Rs 2.11 lakh crore package for 20 state-run banks to aid them in meeting global regulatory capital requirements.

The move is aimed at lifting the better-performing PSU banks out of the Reserve Bank of India (RBI)'s Prompt Corrective Action (PCA) plan.

According to Financial Services Secretary Rajiv Kumar, four to five such banks could be taken out of the PCA with the infusion of this capital. The enhanced provision will help these banks achieve the 9 per cent capital to risk-weighted asset ratio, and the 6 per cent net non-performing assets (NPA) threshold requirement to aid them in coming out of the PCA plan.

Additionally, the enhanced provision is aimed at helping banks meet regulatory capital norms, strengthening amalgamating banks by providing both regulatory and growth capital, and facilitating non-PCA banks that are in breach of some PCA thresholds to not breach them.

The capital infusion of Rs 83,000 crore will be distributed within the above mentioned heads by the Department of Financial Services, the finance minister said.

Fraud-hit Punjab National Bank is one of three banks close to the PCA red line which will receive additional capital to prevent it from breaching it, said Mr Kumar.

"High provisioning has been made by banks which has led to peaking of NPAs. The last quarter has shown improved performance... a downward slide in NPAs itself will now commence, which will lead to an increase in the lending capacity of banks," Mr Jaitley said.

According to the finance ministry note, PSU banks have made a record recovery of Rs 60,726 crore in the first half of this financial year. That is more than double the amount recovered over the corresponding period last year.

After peaking in March 2018, gross NPAs with public sector banks declined by Rs 23,860 crore in the first half of the current financial year (2018-19), the note said.

The government and the RBI were locked in a battle over relaxing lending norms for public sector banks under the PCA framework, citing a credit crunch in the MSME (micro, small and medium enterprises) sector.

Mr Kumar expressed faith these measures will improve lending to the MSMEs as well.

Among banks which did not need any capital support were names such as SBI, Indian Bank, Bank of Baroda and Vijaya Bank.



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