Finance ministry increases bank recap fund by Rs 35,000cr

New Delhi: The Centre on Thursday sought parliament’s nod for enhancing funds earmarked for the recapitalisation of state-owned banks to Rs 1,06,000 crore from an earlier target of  Rs 65,000 crore in the current financial year.

This would enable infusion of over Rs 83,000 crore in the next few months in Public Sector Banks (PSBs), said a finance ministry official. The government is keen on boosting liquidity to the industry so that the economic growth could pick up and more jobs are created ahead of crucial Lok Sabha elections in 2019.

The recapitalisation, finance minister Arun Jaitley said, will enhance the lending capacity of state-owned banks and help them come out of the RBI’s Prompt Corrective Action (PCA) framework. Mr Jaitley said the recognition of non-performing assets in the public sector banks is complete, and the downslide in bad loans has begun.

The finance ministry said that PSBs have already recovered Rs 60,726 crore of the outstanding bad loans in the April-September period, which it termed as a “record” haul.

The ministry said that this recovery is more than double the amount recovered over the corresponding period last year. It said that gross NPAs of the public sector banks  have started declining after peaking in March 2018, registering a decline of Rs 23,860 crore in the first half of the current financial year.

The government had earlier announced infusion of Rs 65,000 crore in PSBs in 2018-19. Of which, Rs 23,000 crore has already been disbursed, while Rs 42,000 crore is remaining.

Four banks — State Bank of India, Bank of Baroda, Indian Bank and Vijaya Bank  — may not need capital.

A total of 11 out of the 21 public sector banks are under RBI’s PCA framework, which imposes lending restrictions on weak banks.

The additional resources have been sought to help the banks to meet their regulatory capital norms and providing capital to better-performing PCA banks to achieve nine per cent Capital to Risk-weighted Asset Ratio (CRAR) to come out of PCA.

The banks, which have not attracted RBI’s lending restrictions but are in breach of some thresholds, will also get additional funds from the government. Some capital will also be provided to the banks which are going to be amalgamated to meet regulatory norms and growth capital.