In a move that galvanised the stock markets, the government on Friday decided to raise its outlay for recapitalising state-owned banks this financial year to Rs 25,000 crore, more than three times the amount earmarked in the Budget. This money will be given in three tranches.
It sought Parliament’s approval for releasing Rs 12,000 crore, which would be disbursed over the next two months. The Budget had put aside Rs 7,940 crore for bank recapitalisation.
The remaining Rs 5,000 crore would be sought in the second supplementary later this year, a finance ministry statement said.
The stock markets reacted positively to the news, with the BSE Sensex rising 1.48% and the NSE Nifty by 1.32% over the previous close.
“We want to ensure that all our banks are well capitalised and as per our calculations, Rs 1,80,000 crore would be required by 2019,” said minister of state for finance Jayant Sinha. Of the RS 20,000 sanctioned until now, Rs 10,000 would go to the top banks—State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank, and IDBI Bank, and the rest to banks that need support. “The remaining Rs 5,000 crore which will come in later would be given to those banks which show healthy performance,” Sinha said.
“This will incentivise them to improve their performance in the current year. The government also said the amount for bank recapitalisation exercise would be increased for the next two years,” the finance ministry statement said.
“This estimate is based on credit growth rate of 12% for the current year and 12% to 15% for the next three years, depending on the size of the bank and their growth ability. We are also presuming that the emphasis on public sector bank’s financing will reduce over the years by development of vibrant corporate debt,” the statement said.Government banks need extra capital to meet the stringent capital requirements norms for banks under Basel 3 guidelines that come into force in 2019.