Finance Minister Arun Jaitley on Wednesday allowed seven public sector banks, weighed down by bad loans, to raise additional capital from the market. This would facilitate them to extend credit to the productive sectors of the economy and push growth.
In a meeting with the chief executive officers of PSBs and financial institutions, he asked them to take commercial decisions without fear or favour as the government is committed to providing financial autonomy both in letter and spirit.
“The adoption of differentiated strategies and capital augmentation plans through innovative financial instruments would allow the banks to meet their capital requirements. This would also at the same time facilitate appropriate credit expansion to meet the needs of the productive sectors of the economy so that the momentum of economic growth may be sustained,” he said at the meeting.
The raising of capital by seven public sector banks will also help them comply with the Basel III banking norms, a finance ministry statement said after the meeting. It, however, did not reveal the names of the lenders allowed to sell shares. India’s largest public sector bank, State Bank of India and a couple of others, including Punjab National Bank, are planning to raise capital through share sale.
“The government doesn't have space to give Rs 20,000 crore or 25,000 crore (for capital infusion) ... If banks require further capital they have other means to raise capital including from raising capital from market,” Financial Services Secretary Hasmukh Adhia told reporters here.
Jaitley also asked lenders to increase lending to MSME sector to promote the ‘Make in India’ initiative. “The lending targets for MSME sector are critical in achieving successful implementation of the Make in India programme. Therefore, credit needs of this sector may be met by the PSBs, the statement said.
Appreciating PSBs for their work in providing financial inclusion to all households under the Pradhan Matri Jan Dhan Yojana (PMJDY), Jaitley said he expected the PSBs “to show the same resolve in containing the slide in financial performance parameters such as credit growth, profits and stressed assets”. While the overall agricultural credit target was achieved in 2014-15, all efforts should be made to make farm credit available to all eligible farmers in the country, he said.
Jaitley noted that credit growth in the housing sector was higher compared with the overall credit growth and the NPAs were lower. The NPAs of PSBs have risen sharply to 5.33 per cent of total advances in September 2014 from 4.72 per cent in March 2014.
