The Union government unveiled an ambitious plan to infuse Rs 2.11 lakh crore capital over the next two years into Public Sector Banks (PSBs) that are saddled with high, non-performing assets (NPAs) and facing the prospect of having to take haircuts on loans stuck in insolvency proceedings. This would be funded through budgetary provisions of Rs 18,139 crore and the sale of recapitalisation bonds worth Rs 1.35 lakh crore. The balance would be raised by the banks themselves by diluting the government’s equity share.
The move is vital for the slowing economy, as private investments remain elusive in the face of the twin-balance sheet problem afflicting corporate India and public sector banks reflected in slow bank credit growth. Several economists opine that the recapitalisation of banks so that they can lend more freely and help revive private investment and that is very critical for revitalising the growth momentum at a time when the global economy is recovering.
Cash starved PSB, is this one of the reason for demonetisation to boost the cash reserve of this bank; is the government trying to cover this crisis in different names and tackle it? This additional funding may help or not is a big question. Unless the working of PSU Banks along with greater sense of responsibility and accountability are fixed, no improvement shall be possible. It is unfortunate that, in spite of huge rising NPA, no CEO of any defaulting PSU bank has been fired and penalised.
Why the Banks cannot learn lessons be drawn from private banks of India which have very low NPA and much better efficiency of working? None of our banks can compete with banks of developed countries. Government has money for recapitalisation of PSU banks but no money to waive farmers’ loans. It appears as though that the government is favouring capitalism. This is purely wrong policy. Dialogues and promises delivered, claims are made that everything is going great, and no diligence paid to understand how a scheme could help or make worse one’s life.
The government’s capitalisation package for public sector banks will provide a strong booster dose of relief for the capital starved public sector banks; CRISIL’s assessment of capital requirement for public sector banks to meet Basel III requirements is in the range of Rs 1.4-1.7 lakh crore which will be met by the government’s relief package.
(The views expressed by the author in the article are his/her own.)