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PSU banks allocated Rs 70,000 crore recapitalisation in Budget

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New Delhi, July 5 (IANS) Finance Minister Nirmala Sitharaman on Friday announced that public sector banks will be provided with a recapitalisation of Rs 70,000 crore to support lendings.

"PSU bank recapitalisation should make bank lending easy. Rs 70,000 crore PSU bank recap addresses the issue of liquidity and interest rate transmission and makes bank lending easy," Sitharaman said at the post-Budget media interaction.

Banks were citing lack of growth capital as the reasons behind not passing the RBI repo rate cuts. While tabling the Budget, Sitharaman said Indian banking sector saw Rs 1 lakh crore of NPA resolution and recovery of Rs four lakh crore through the IBC mechanism in the last four years.

She also said six PSU banks have already been brought out of the Prompt Corrective Action (PCA) framework. In the past three years, PSBs have been recapitalised to the extent of Rs 2.87 lakh crore, with infusion of Rs 2.20 lakh crore by the government and mobilisation of over Rs 66,000 crore by PSBs themselves.

Officials said the capital will be used for growth. The government will initiate steps to empower account holders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts.

Reforms will also be undertaken to strengthen governance in public sector banks. Financial gains from cleaning of the banking system are now amply visible. The NPAs of commercial banks have reduced by over Rs 1 lakh crore over the last year, record recovery of over Rs four lakh crore due to IBC and other measures has been effected over the last four years, provision coverage ratio is now at its highest in seven years, and domestic credit growth has risen to 13.8 per cent, Sitharaman said.

She further informed that, the government has smoothly carried out consolidation, reducing the number of PSU banks by eight. At the same time, as many as six PSU banks have been enabled to come out of Prompt Corrective Action framework.

The Finance Minister informed that Non-Banking Financial Companies (NBFCs) are playing an extremely important role in sustaining consumption demand as well as capital formation in small and medium industrial segment. NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse.

For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of Rs one lakh crore during the current financial year, government will provide one-time six months’ partial credit guarantee to PSU banks for first loss of up to 10 per cent.

Further, Reserve Bank of India (RBI) is the regulator for NBFCs. However, RBI has limited regulatory authority over NBFCs. Appropriate proposals for strengthening the regulatory authority of RBI over NBFCs are being placed in the Finance Bill.

"NBFC credits are critical. Government has comprehensively thought solutions for the NBFC sector," she added.

She said that NBFCs which do public placement of debt have to maintain a Debenture Redemption Reserve (DRR) and in addition, a special reserve as required by RBI, has also to be maintained.

To allow NBFCs to raise funds in public issues, the requirement of creating a DRR, which is currently applicable for only public issues as private placements are exempt, will be done away with.


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