Jaitley promises more capital for PSBs in Budget

After promise to pump in a whopping Rs 2.11 lakh crore in public sector banks, the government on Sunday said that it has decided to put in more capital in PSBs through the Union Budget in February, but everything will be performance linked.

The fresh commitment comes amid a slowing economy putting pressure on investments and squeezing banks' capacity to lend further for infrastructure projects. Public sector banks have been slow in lending to corporates because of lack of capital. Retail lending, however, has not been impacted much.

The government is planning to put in them Rs 2,11,000 crore over a period of two years, but the bulk of money is expected to be given this year itself.

"The government has decided to put in more capital from the Budget, through bonds and banks' equity expansion and therefore, it is the country which is virtually going to pay to keep the banking system in good health," Finance Minister Arun Jaitley said at PSB Manthan here.

The finance minister's fresh promise is an indication of more tax burden on the tax payers in the coming fiscal as the recapitalisation bonds as referred to by Jaitley and, their interest, will only increase the government's debt.

"We want a robust public sector banking system so that your ability to support growth itself increases," Jaitley said.

PSBs were major players in supporting agriculture, infrastructure, industry and financial inclusion, and therefore, India needed healthy PSBs, he said.

State-owned lenders' enhanced support to small and medium enterprises was discussed threadbare in the meeting as the sector contributes majorly in job creation, sources said.

Financial Affairs Secretary Rajiv Kumar said, "It is not an easy money that's going to come to PSBs. Boards to chalk out a clear action plan, they will use data analytics to leverage credit growth."

He said that the capital infusion will be reforms-linked.