Customers exit State Bank of India Bank (SBI) branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Budget 2019: Government Allocates Rs 70,000 Crore For PSU Bank Recapitalisation 

The Indian government will pump in another Rs 70,000 crore into the country’s public sector banks as it attempts to push up the pace of lending to the Indian economy. For the last few years, lack of adequate capital despite record high fund infusion from the government has meant that government banks have pulled back on growth.

Further capital is being provided to boost credit flow to the economy, Finance Minister Nirmala Sitharaman said in the budget speech.

Steps will also be taken to strengthen governance in PSU banks, Sitharaman said without detailing any specific measures.

Record-High Recapitalisation

The Bharatiya Janata Party-led government has been forced to infuse record amounts of capital into PSU banks following an asset quality review initiated by the Reserve Bank of India in 2015. The review led to a surge in reported bad loans and necessitated an increase in provisions.

“Over the last five financial years, PSBs have been recapitalised to the extent of Rs 3.19 lakh crore, with infusion of Rs. 2.5 lakh crore by the government and mobilisation of over Rs 66,000 crore by PSBs themselves,” Finance Minister Nirmala Sitharaman said in a response to a query in Parliament on June 24.

In addition to infusing capital, the government has made some attempts to improve the functioning of these banks by linking growth capital to performance-based indicators. However, other key banking reforms such as corporatisation of government banks and distancing the government from the functioning of these lenders remain unimplemented.

Bloomberg Quint

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