FM said that the financial gains from cleaning of the banking system are clearly visible and that NPAs have reduced by over Rs 1 lakh crore last year.
Mumbai: To strengthen financial health of public sector banks (PSBs), finance minister Nirmala Sitharaman on Friday said the government will pump in Rs 70,000 crore to boost their lending capacity and to help them exit the Prompt Corrective Action (PCA) framework.
In her budget speech, Ms Sitharaman said that the financial gains from cleaning of the banking system are clearly visible and that NPAs have reduced by over Rs 1 lakh crore last year. Smooth consolidation of banks was carried out and six public sector banks were brought out of prompt corrective action (PCA) framework.
Anil Gupta, vice president and sector head, financial sector ratings at ICRA Ltd said, “The bank recapitalisation of Rs 70,000 crore appears to be positive as it will not only address regulatory capital requirements but also the growth capital. In our view, with this capital infusion, all the PSBs should be able to exit the PCA framework and also facilitate the merger among PSBs. Further, in our view, the dependence on banks for raising capital from market sources also stands substantially reduced and the credit growth of 12-13% is assured, even if PSBs are unable to raise capital from markets.
Presenting the Budget for 2019-20, finance minister Nirmala Sitharaman announced further opening up of foreign investment in sectors like aviation, insurance and media sectors, while throwing a lifeline to the struggling shadow banks (NBFCs), to boost investment and lending in the economy.
“The Indian economy will grow to become a USD 3 trillion economy in the current year (from USD 2.7 trillion last year). It is now the sixth largest in the world,” she said.
For NBFCs, she announced measures to improve their access to funding by providing a limited backstop for purchases of their assets. The government will provide a partial guarantee to state banks for the acquisition of up to Rs 1 lakh crore of highly rated assets from non-bank finance firms.