The UPA government is set to spend Rs 8,500-9,000 crore on recapitalising public sector banks during the current fiscal. An announcement to this effect is likely in the forthcoming budget. It is anticipated that the move would help these banks to shore up their capital adequacy ratios, enabling them to enhance lending.
In the next fiscal, the government has decided to spend Rs 7000 crore for the exercise.
Barring a few banks like State Bank of India, Punjab National Bank, Canara Bank and Bank of India, all nationalised banks could get recapitalised this year.
The government is however yet to decide on how to raise this amount. Rather than seek World Bank assistance, it may opt for an outright budgetary provision for the same.
“We are yet to decide whether or not we want take World Bank loan for this, though discussions are on with the bank on the issue. We are looking at other options as well including a budgetary provision,” a senior government official on condition of anonymity told Hindustan Times.
The government has already infused Rs 3,800-crore into three PSU banks — UCO Bank, Central Bank of India and Vijaya Bank. The added funds would be a part of the tier-I capital of these banks.
Several banks including Punjab and Sinda Bank, Central Bank and Bank of Maharashtra have adequate headroom for dilution of government equity as well.
A banking source said that most banks would however wait before visiting the capital market. “We would wait for the market to stabilise before launching a public offer, though the groundwork for the same would be done at the earliest,” a PSU bank chairman said.
While the US government infused capital into banks to prevent them from turning insolvent, in India the move would allow banks to further strengthen their financial position — which would also help them in increasing their lending.