Finance minister Nirmala Sitharaman will present the Union Budget 2019 on July 5. (Photographer: Anindito Mukherjee/Bloomberg)

Budget 2019 May Earmark Rs 30,000 Crore For Bank Recapitalisation

The finance ministry is evaluating capital needs of public sector banks and is likely to infuse Rs 30,000 crore under the bank recapitalisation plan for 2019-20, government sources indicated on Sunday. An announcement to this effect is likely to be made in Union Budget 2019, to be presented by finance minister Nirmala Sitharaman on July 5.

The capital infusion will help public sector banks meet the minimum capital adequacy ratio under Basel III norms in 2019-20, the sources added.

Public sector banks would also require capital for credit growth, which recently started picking up. Five weak banks under Reserve Bank of India‘s Prompt Corrective Action framework too need capital to maintain the minimum CAR.

Besides, if the government goes for another bank merger, like in the case of Bank of Baroda, that too will require capital infusion. The government infused Rs 5,042 crore in Bank of Baroda to enhance its capital base ahead of its merger with Dena Bank and Vijaya Bank.

In all, the government made record capital infusion of Rs 1,06,000 crore in public sector banks in 2018-19. It was enhanced from earlier provision of Rs 65,000 crore in December 2018 as part of the bank recapitalisation plan.

As a result of capital infusion, five banks—Bank of India, Oriental Bank of Commerce, Bank of Maharashtra, Allahabad Bank and Corporation Bank—came out of RBI’s PCA framework. Following the three-way merger, Bank of Baroda too came out of weak bank category. Out of 11, only five are left in the RBI PCA.

As far as their own resource mobilisation are concerned, public sector banks are not able to tap capital market because of their low share prices, the sources said. They are banking of sale of non-core assets which are not enough, they said, adding that public sector banks would require capital infusion from the government this fiscal as well.

The quantum of the bank recapitalisation will depend on the government's fiscal math and deliberations of the finance ministry’s budget division.

Initial estimates indicate a capital requirement of Rs 20,000-30,000 crore, provided banks are also able to raise funds on their own from the market through asset and share sales, the sources said.

Many banks, including State Bank of India and Bank of Baroda, have already got their boards’ approval for capital raising as and when required. Bank of Baroda plans to raise Rs 11,900 crore during the current fiscal through share sales. It expects to garner Rs 1,500 crore from Bank of Baroda Employee Share Purchase Scheme. ESPS will be within overall limit of capital plan 2019-20 of Rs 11,900 crore.

Bloomberg Quint

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