There are strong indications that public sector banks, creaking under the load of bad loans that yield no interest or suffer defaults, are set for a fresh dose of capital injection to cushion the impact and sustain lending for growth. Measures on the cards could be fresh budgetary support from the new government taking charge after elections or follow-on offers of shares.
The finance ministry has asked state-owned banks to firm up their individual plans to raise capital to support their operations and expansion plans.
While the government, in the Interim Budget in February, provided Rs. 11,200 crore to public sector banks as part of the recapitalisation exercise, finance minister P Chidambaram had said that the sum was inadequate and an additional amount could be earmarked for the recapitalisation exercise in the full budget, expected to be presented in July.
Recapitalisation enables banks to lend more to customers at reasonable rates of interest, which in turn boosts economic growth.
“Banks have been advised to chalk out their plans to raise capital, a few could be even be looking at follow-on public offer, it is the decision that banks have to take after which the finance ministry will give its nod,” a senior government official who refused to be identified told HT.
It is, however, not clear as to how much additional amount will be provided to government banks for recapitalisation. “The sum has to be decided closer to the full budget, at this point it cannot be specified,” the official said, adding, a lot would depend on the new finance minister.
Chidambaram had announced a capital infusion of Rs. 14,000 crore while presenting the full budget last year.
According to the Reserve Bank of India (RBI), an additional Rs. 5 lakh crore would be required by banks to meet the stringent Basel III norms by March 2019, under which all banks will have to shore up their capital adequacy ratio.
The government has infused over Rs. 20,000 crore into public sector banks between 2010 and 2012.