New Delhi: The government today said it will infuse an unprecedented Rs 88,139 crore capital in 20 public sector banks (PSBs) before 31 March to boost lending and revive growth, and unveiled steps to tackle the bad loan problem which has reached record levels.
The lenders, which include State Bank of India, account for more than two-third of India’s banking assets as well as most of the over Rs 8 lakh crore of non-performing assets (NPAs) or bad loans.
Announcing the banking sector reforms, Finance Minister Arun Jaitley said stringent norms for disbursal of high value loans have been framed, with strict surveillance on big loan defaulters and mandatory reporting of loans of over Rs 250 crore.
Bank have also been instructed to become more professional.
The capital infusion is part of the massive Rs 2.11 lakh crore bank recapitalisation plan announced by the government in October last year. It is spread over two fiscal 2017-18 and 2018-19.
The finance ministry will raise Rs 80,000 crore through recapitalisation bonds and provide another Rs 8,139 crore from the Budget to recapitalise the banks.
The total recapitalisation will cross Rs 1 lakh crore in the fiscal ending 31 March 2018 after including funds raised from sales of shares to external investors, said Rajeev Kumar, Secretary, Department of Financial Services.
The banks have so far raised Rs 10,312 crore from the capital markets and more are expected to be raised in the remaining period of the 2017-18 fiscal.
Of the Rs 2.11 lakh crore bank recapitalisation plan announced in October last year, Rs 1.35 lakh crore was to come through the sale of bonds and Rs 76,000 crore through budgetary support and from the market.
Such bonds would not impact government’s target to shrink the fiscal deficit to 3.2% of GDP in current fiscal as IMF’s rules classify such debt as “below-the-line” financing.
Banks will have to adopt the differentiated business strategy and exit from non-core businesses and focus on their core competencies. “This is no easy money (that the banks will get),” Kumar said, adding that PSBs will be adequately capitalised.
The Rs 1 lakh crore more in capital enables additional credit offtake capacity of PSBs by more than Rs 5 lakh crore.
The banks will have to keep a strict watch on lending and recovery and undertake specialised monitoring of loans over Rs 250 crore. Besides, the PSBs need to have a dedicated stressed assets management vertical.
The banking sector in India is staring at Rs 10 lakh crore worth non-performing loans, which has hindered their lending capability.
During the current fiscal, IDBI Bank will get highest infusion of Rs 10,610 crore, followed by State Bank of India (Rs 8,800 crore) and Bank of India, Rs 9,232 crore.
UCO Bank will get Rs 6,507 crore; Punjab National Bank – Rs 5,473 crore; Bank of Baroda-Rs 5,375 crore; Central Bank of India-Rs 5,158 crore; Canara Bank-Rs 4,865 crore; Indian Overseas Bank-Rs 4,694 crore and Union Bank of India-Rs 4,524 crore.
Oriental Bank of Commerce would get Rs 3,571 crore; Dena Bank-Rs 3,045 crore; Bank of Maharashtra-Rs 3,173 crore; United Bank of India-Rs 2,634 crore; Corporation Ban-Rs 2,187 crore; Syndicate Bank-Rs 2,839 crore; Andhra Bank-Rs 1,890 crore; Allahabad Bank-Rs 1,500 crore, Punjab and Sind Bank-Rs 785 crore.