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Public sector banks get Rs 22,915 crore capital infusion

Economists say it may not improve lending or the NPA situation significantly

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In a bid to boost lending by public sector banks (PSBs) and adhere to the global capital risk norm of the Basel-III, the government on Tuesday infused 75% of the budgeted recapitalisation amount of Rs 22,915 crore in 13 state-owned banks.

This is the first tranche of the Rs 25,000 crore to be pumped into the PSBs in the current fiscal.

D K Srivastava, chief economic advisor, EY India, said the amount was "a small dose" for a big "disease" and may not result in any significant improvement in the lending or the non-performing assets (NPAs) situation of the PSBs.

"This will not enable the bank to become more efficient in terms of the lending policy and all," he said.

Banks, especially the government-owned ones, have been grappling with the issue of massive NPAs in their books due to their huge exposure to the infrastructure, commodity and other sectors, where projects have stalled because of the slowdown in domestic and global demand.

In order to address this problem, the government had come out with a plan to resolve the current crisis in the banking sector that was called Indradhanush. Under this, it worked out a recapitalisation need of the banks. Tuesday's fund release was part of that plan.

"The capital infusion exercise for the current year is based on an assessment of need as assessed from the compounded annual growth rate (CAGR) of credit growth for the last five years, banks' own projections of credit growth and an objective assessment of the potential for growth of each public sector bank," said the finance ministry statement.

The government said capital infusion had been done to "provide liquidity support for lending operations and to enable banks to raise funds from the market".

It said the balance 25% of the total budgeted amount would be released later based on the performance of the banks that would take into consideration their efficiency, growth in credit and deposits and reduction in the cost of operations.

As per the last year's assessment of the government, capital needed by the PSBs over four years up to 2018-19 was Rs 1.8 lakh crore. Of this, Rs 70,000 crore would be met by it. The finance ministry had come up with this estimate based on credit growth of 12% last fiscal and 12%-15% in the current and next two fiscals.

As per the Indradhanush roadmap, it released Rs 25,000 crore last fiscal followed by the same amount this fiscal. This will drop to Rs 10,000 crore in 2017-18 and 2018-19.

EY's Srivastava feels the primary responsibility for fixing the problem lies with banks and borrowers and so the government should not excessive use the taxpayer's money for it.

"The budgeted fund is inadequate related to the problem at hand but, at the same time, taxpayers cannot be expected to foot the entire bill because the banks' NPA problem arise either due to inadequate governance by them or by the improper behaviour of the borrowers. So, those two are the responsible parties. The primary responsibility of correcting the bank's position lies with the bank and then with the borrowers who have been delinquent," he said.

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