PSU banks may see enhanced profits with write-back of some loan provisions in their balance sheets on account of the IBC resolutions and they must now tap the market themselves instead of looking for recapitalisation, Chief Economic Advisor Krishnamurthy Subramanian has said.
"The Budget's decision not to recapitalise the PSU banks is a good move and signals that all the banks are adequately capitalised at this point. The Judgement on Essar Steel provides greater clarity on the IBC. The profits of State Bank of India were boosted by the Essar Steel IBC resolution. Some of those accounts which have been fully written down by banks, when they get resolved, there will be a write-back on account of the resolutions. And this will enhance their profitability and also have an impact on their growth capital. That's one aspect the government clearly believes that these banks are adequately capitalized," Mr Subramanian told IANS.
"So having all the while supported the banks when they needed support, the government now wants them to stand on their own, enhance the governance and tap into the market," Mr Subramanian added.
State Bank of India reported a 41 per cent year-on-year (y-o-y) rise in net profit during the December quarter to Rs 5,583 crore, which was driven by healthy income from retail loans and Rs 11,000-crore recovery from Essar Steel, following its sale to ArcelorMittal.
Finance Minister Nirmala Sitharaman said in the Budget that government so far has infused Rs 3.5 crore capital into public sector banks (PSBs) to help them maintain regulatory capital requirements and finance growth plans. In the last Budget, the government had infused Rs 70,000 crore.
"We have infused Rs 3.5 crore capital into PSU banks. A few among them will be encouraged to move the capital market for fundraising purposes", Ms Sitharaman said in her Budget Speech.
Finance Secretary Rajeev Kumar had earlier said banks have to tap the market and government would start gradually lowering its stake in the state lenders. In some of state-run banks, the government's stake touches nearly 100 per cent.
Recently Punjab National Bank received board approval to raise Rs 1,000 crore from the market through bonds issue. IDBI Bank also proposes to raise Rs 1,500 crore from bonds to fund growth.
Among four anchor banks, the Punjab National Bank was given Rs 16,091 crore, Union Bank of India Rs 11,768 crore, Canara Bank Rs 6,571 crore and Indian Bank Rs 2,534 crore. Among the merging entities, Allahabad Bank was provided Rs 2,153 crore, United Bank of India got 1,666 crore and Andhra Bank received Rs 200 crore.
Besides, the Bank of Baroda received a capital infusion of Rs 7,000 crore, Indian Overseas Bank Rs 4,360 crore, UCO Bank Rs 2142 crore, Punjab & Sind Bank 787 crore and Central Bank of India Rs 3,353 crore.
State Bank of India has already initiated the process of diluting stake in its subsidiary SBI Cards and Payment Services Ltd., and UTI Asset Management Co. Ltd. via planned initial public offerings. It is looking to sell 50 lakh shares representing 1.01 per cent stake in the National Stock Exchange. Life Insurance Corporation of India-controlled IDBI Bank too received additional capital of Rs 4,557 crore through the first supplementary demand for grants approved by the Parliament last month.