Central Government deposits Rs.83,000 crores in Public Sector Banks

It Increase The Lending Capacity Of Public Sector Banks
and Help Some Of Them To Come Out Of RBI’s supervision

• The Union Government has proposed a plan of depositing Rs.83,000 crore in state run PSU Banks by the end of this financial year as it looks to revive their finances and put credit growth back on a sound footing.
•  The government had earlier announced an infusion of Rs 65,000 crore in public sector banks in 2018-19, out of which Rs 23,000 crore has already been given to them while the remaining Rs 42,000 crore has still to be disbursed.
•  But in recent financial scenario of the country, the Government submitted plan for Parliament’s approval for infusion of an additional Rs 41,000 crore into public sector banks. This amount which will be infused through issuance of government securities.
•  If approved by the House, this would take the total recapitalization package for the current financial year to Rs. 1,06,000 crore, of which the government plans to utilize Rs. 83,000 crore over the remaining portion of the year.

Highlights of Central Government’s plan on Recapitalization of the PSU Banks

•  The move is aimed at lifting the better-performing PSU banks out of the Reserve Bank of India. This ensures that banks meet their regulatory capital norms. The
• It aims at better performing banks under the RBI’s prompt corrective action (PCA) are given capital to achieve a 9 per cent Capital to Risk Weighted Assets Ratio (CRAR) and required capital conservation.
• It will also ensure that the Non-PCA banks which are very close to the PCA red-line will be provided capital so that they do not come under the framework. Some capital will also be provided to banks which are going to be merged to meet regulatory norms and growth capital.
• The funds will go to five banks out of a total 11 to help them exit PCA. They will also go to about three banks, including the scam-hit Punjab National Bank that are in danger of breaching PCA thresholds.
• Banks with robust balance sheets such as State Bank of India and those at the weakest end of the spectrum will be excluded from this round of infusions.
• Bank of Baroda, Dena Bank and Vijaya Bank, which are in the process of being merged, will also be given capital to bolster the resultant entity.

Effect of the proposal on NPA (Non Performing Assets)

Banks that have slashed their non-performing loans to 6% of the total will be given required capital support. Lenders will be given additional infusions to achieve a 9% capital to risk-weighted asset ratio. Such assets have declined from a peak of 7% in March 2015 to 0.59% in September 2018. Gross NPAs declined by Rs 23,860 cr in the first half of the current fiscal from March 2018 levels.