PSU Bank Capital Infusion Failed To Boost Credit Growth, Says India Ratings
The Rs 3 lakh crore capital infusion by the government into state-run banks over the past six years has helped them reduce losses but has failed to boost credit growth, says a report.
Between 2013-14 and 2018-19, the government infused Rs 3 lakh crore in state-run banks—a good portion of which came in from the national insurer LIC. This has doubled the value of their stake in these banks to Rs 4.4 lakh crore as of July 2019, from Rs 2.2 lakh crore as of March 2014.
“While the government has infused huge capital into PSBs, the same has largely been used to mitigate losses and has failed to contribute meaningfully to credit growth,” India Ratings said in a report on Thursday.
During 2018-19 and 2017-18, bank credit grew in double-digits (13.24 percent in 2018-19), while in 2016-17, the credit supply was at five decade low of 4.6 percent.
The agency said from a value-creation objective, the scenario looks weak as the current market value as of July 29 the government and LIC’s stake was valued at Rs 4.4 lakh crore compared to about Rs 2.2 lakh crore in 2013-14.
“The increase in market capitalisation over FY14 is significantly lower than the capital infused,” it highlighted.
Nine lenders of the 19 PSBs, including Indian Bank, State Bank of India, Bank of Baroda and Canara Bank, have reported current value of investment higher than the investment amount, the report said.
The sharp deterioration in asset quality in the last few years has led to accelerated provisions among by all the PSBs leading to massive losses.
“In reality, the capital infused was largely consumed to tide over losses resulting from provisions required on non-performing assets,” it said.
Over the years, market share of PSBs in incremental credit generation shifted to other market participants including private banks, foreign banks, non-bank financial companies, housing finance companies and mutual funds.
The market share of PSBs fell to 46.5 percent in 2018-19 from 60.9 percent in 2013-14. In terms of incremental credit, their share has been 26.2 percent over FY14-FY19.
The report said recapitalisation is a prompt response to infuse funds in cash-strapped public sector banks.
“The capital infusion by the government in PSBs may ensure banks' solvency but may not necessarily ensure stability and growth in the absence of non-financial and structural reforms,” the agency said.