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Leg-up for PSU banks: Modi government may infuse Rs 54,000 crore in February

It already provided Rs 51,533 crore to a clutch of state-run banks by end-December.

The government has indicated to state-run banks that it will finalise the infusion of over `54,000 crore into public sector banks (PSBs) once their results for the December quarter are out in February, banking sources said. The move is part of the government’s proposed `1.06-lakh-crore infusion into capital starved PSBs in FY19, against `88,139 crore a year before. It already provided `51,533 crore to a clutch of state-run banks by end-December.

Top executives of PSBs met interim finance minister Piyush Goyal on Monday, who promised “solid backing” of the government in their efforts to get back to health. Ahead of the interim Budget and the general polls this year, Goyal discussed ways to offer enhanced credit support to the MSME, agriculture and housing.

Separately, RBI governor Shaktikanta Das met heads of PSBs and flagged the need for them to observe prudential norms while extending credit but without excessive conservatism. He also conveyed to them the RBI’s expectation from the banking sector, days before the monetary policy meeting on February 7. SBI chairman Rajnish Kumar said financial inclusion and management of stressed assets also featured in the meeting with Goyal. PNB managing director Sunil Mehta said the meeting focussed on bolstering credit delivery mechanism, too.

This was Goyal’s first major meeting with public sector bankers since taking over the finance portfolio again in the absence of Arun Jaitley this month. “The presentations of some of these banks revolve around their capital requirements and progress in the battle against non-performing assets. Some of the PCA banks sought more capital, while some others said they are inching closer to sound financials,” one of the sources said.

“On the back of recapitalisation of PSBs by over `2.6 lakh crore and recovery of over `2.8 lakh crore — including record recovery of over `1 lakh crore in the first three quarters of the current fiscal — since clean-up began in 2015, and comprehensive reforms for better underwriting of loans, PSBs committed to significantly step up the level of domestic credit growth from 9.1% y-o-y at the end the second quarter of the current financial year,” the finance ministry later said in a

However, state-run banks have also lost their share in the market capitalisation of all banks in recent years–from around 42% in 2014 to just around 26% now, despite the infusion. Of course, without the government support, many of the bad-loan-hit banks would have fallen short of meeting their regulatory capital requirement.

To help MSMEs, hit by the twin blow of demonetisation and GST, the government has launched a programme to extend loans to them in 59 minutes. PSBs committed to further improving the robust growth in credit and reducing trend in turnaround time for loan applications through growing use of fintech and technology.
The finance ministry believes the worst is over for state-run banks and the recent improvement in their performance will be further bolstered by a series of infusions planned over the next few months. Gross non-performing asset ratio in the banking system is expected to ease for the first time in almost a decade to 10.3% by the end of 2018-19 under the baseline scenario, from as much as 11.2% a year before, according to the latest RBI projection. This is mainly due to easing concerns about the NPAs of state-run banks, who account for an overwhelmingly large share of these bad loans.
As such, NPAs of PSBs dropped Rs 23,860 crore in the first half of the current fiscal from a peak of Rs 9.62 lakh crore in March 2018, in a sign that the worst is behind, financial services secretary Rajiv Kumar had said recently.


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