Budget 2020: Government Unlikely To Announce Capital Infusion For PSU Banks
Finance Minister Nirmala Sitharaman. (Photo: PTI)

Budget 2020: Government Unlikely To Announce Capital Infusion For PSU Banks

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The government is unlikely to announce capital infusion for public sector banks in Union Budget 2020-21 and will rather encourage them to expedite recovery of bad loans and raise funds from the market.

Besides, sources said, banks may also look for divesting or selling their non-core business as part of fundraising exercise during 2020-21.

The government remains committed to maintain financial health of public sector banks and it will provide capital in case if the need arises in the future, sources added.

Finance Minister Nirmala Sitharaman is expected to present the second budget of the Modi 2.0 government on Feb. 1.

According to sources, banks have a robust pipeline of recovery from the resolution of both National Company Law Tribunal and non-NCLT cases during this calendar year and also headroom for raising capital from the market.

The provision coverage ratio of public sector banks is at a seven-year high of 76.6 percent. In some of the non-performing assets, banks have done provisions up to 100 percent, sources said, adding that recovery from those account will straightaway form part of the bottomline.

Share prices of some of the banks are firming up which provide them opportunity to dilute government holding, sources said.

State Bank of India has already initiated the process of diluting stake in its subsidiary SBI Cards and Payment Services Ltd., and UTI Asset Management Co. Ltd. via planned initial public offerings. It is looking to sell 50 lakh shares representing 1.01 percent stake in the National Stock Exchange.

Similar exercises are being undertaken by other state-owned lenders as well.

To take care of the PSU bank mergers announced in August 2019, the government has already front-loaded Rs 68,855 crore out of Rs 70,000 crore earmarked for bank recapitalisation in 2019-20.

Among all four anchor banks, Punjab National Bank was given Rs 16,091 crore, Union Bank of India Rs 11,768 crore, Canara Bank Rs 6,571 crore and Indian Bank Rs 2,534 crore. Merging entities, like Allahabad Bank, was provided Rs 2,153 crore, while United Bank of India got 1,666 crore and Andhra Bank Rs 200 crore.

Also read: Why PSU Bank Mergers Won’t Solve Indian Economy’s Most Pressing Problem 

Besides, Bank of Baroda got a capital infusion of Rs 7,000 crore, Indian Overseas Bank Rs 4,360 crore, UCO Bank Rs 2142 crore, Punjab & Sind Bank 787 crore and Central Bank of India Rs 3,353 crore.

Life Insurance Corporation of India-controlled IDBI Bank too received additional capital of Rs 4,557 crore through the first supplementary demand for grants approved by the Parliament last month.

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