The government had decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to
support credit growth
The government could pour in an additional Rs 30,000 crores into public sector banks (PSBs), given that they have not been able to raise the required funds from the market so far.
The government expected the PSBs to raise Rs 58,000 crores from stock markets by March 2019 to meet Basel III norms under the capital infusion plan announced by the Finance Ministry in October 2017. However, that does not seem to be happening.
In addition, the first two-quarters of this fiscal has seen a rise in non-performing assets in the banking sector, putting stress on their bottom lines.
The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 37,000 crore in the hands of banks.
However, the banks have got a breather in respect of Capital Conservation Buffer (CCB), a part of Basel III norms. The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 37,000 crore in the hands of banks.
Despite this relaxation, PSBs need more funds to meet global capital norms called Basel III as the RBI has retained the capital to risk weighted assets ratio (CRAR) at 9 per cent, sources said, adding, the shortfall could be around Rs 30,000 crore.
However, sources said the matter is being considered by the government and the final decision is expected in the next few weeks.
The government had decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth. This entailed mobilisation of capital to the tune of about Rs 2,11,000 crore over the next two years — through budgetary provisions of Rs 18,139 crore, recapitalisation bonds of Rs 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity estimated at Rs 58,000 crore.
As per this plan, the remaining capital infusion is about Rs 42,000 crore.