More capital for public sector banks on anvil

More capital for public sector banks on anvil

More capital for public sector banks on anvil

 Close on the heels of allocating nearly Rs 23,000 crore to public sector banks, the government is planning to give more capital to state-run lenders to deal with the problem of stressed assets. 

More capital is expected to come through in this financial year, but after seeing their December quarter earnings.

“The Finance Ministry has set parameters for getting capital support. Those who fulfil the criteria post-third quarter results would be eligible for capital infusion,” according to sources.

This will be the second tranche of capital. The first was allocated in July this year.Sources said that this will be in addition to what has already been Budgeted for this year. Under the Indradhanush scheme,  Rs 70,000 crore in capital is to be invested over four years to contain risks in the banking industry, and boost the government’s shareholdings in the banks, which have been under-capitalised compared with their private peers, because of restrictions on their ability to sell equity to raise money. 

But there is a rider. The money will be allocated to banks based on their performance with particular reference to greater efficiency, growth of both credit and deposits, and reduction in the cost of operations. The RBI too has made a strong case for providing more capital to public sector banks to deal with the problem of stressed assets.

“Indian banks got into stress before implementation of Basel III and revised IFRS, which provide protection against system-level stresses... so we have to find more capital for supporting banks today. Of course, the Government of India has supported the entire AQR (asset quality review) exercise that we have done,” the newly appointed Deputy Governor of RBI, N S Vishwanathan, recently said.

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