But shaky public sector banks need govt support
With the level of bad assets in the Indian banks expected to swell further due to the recent Supreme Court judgment scrapping 122 telecom licences, the government could look at infusing huge capital into the public sector banks in the next fiscal year.Updated: Feb 05, 2012 22:50 IST
With the level of bad assets in the Indian banks expected to swell further due to the recent Supreme Court judgment scrapping 122 telecom licences, the government could look at infusing huge capital into the public sector banks in the next fiscal year.
The amount is yet to be decided, though an official source indicated it could be anywhere between Rs 30,000 crore and Rs 40,000 crore. An announcement to this effect could be made by finance minister Pranab Mukherjee in the forthcoming budget.
"Non-performing assets (NPA) for banks have already risen substantially in the current fiscal but with the 2G verdict, the burden is likely to be much more and we need to capitalise the banks at the earliest," a senior finance ministry official who did not wish to be identified said.
Though banks would have the option of bringing in SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act in case of default by companies and auction their properties (residential and commercial) to recover a part of the loan, the process would be time consuming and banks in turn would find it difficult to liquidate the properties," said Manoj Kumar, legal expert and managing partner, Hammurabi & Solomon. "Relevant banks may suddenly have huge NPAs on their books."
A total of Rs 20,000 crore is expected to be infused into the public sector banks, including the State Bank of India in the current fiscal itself. The government also wants a blueprint on these banks for 2030.
The ministry has set up a committee, which would focus on core areas of capital requirement, reach, network, business and human resource of banks.
The government is also chalking out a 10-year roadmap, looking into the issue of infusing capital into other banks and financial institutions. It has decided to infuse nearly Rs 450,000 crore to bolster the capital base of public sector banks spread over a 10-year period.