Budget buzz: Govt eyes capital infusion in PSU banks

NEW DELHI: With the rising nonperforming assets (NPAs), or bad loans, leading to a dip in capital adequacy ratio of public sector banks, the government is looking into the recapitalisation of state-owned lenders. Finance minister Arun Jaitley is likely to chalk out a roadmap with specific timelines in the forthcoming budget to address the same.

The capital adequacy ratio is the ratio of a bank’s capital to its risk and a measure of how much loss it can absorb.

While the government’s stake in state-owned banks is slated to be brought down to about 52%, which could take time and would be done in a phased manner, the finance ministry is also looking at capital infusion to address the immediate issues.

Banks have also been asked to give its own proposals as per their individual needs.

“This is an issue for banks and the next full budget is set to take it up and give a detailed roadmap for the same,” a senior government official who did not wish to be identified told HT.

While discussions for the forthcoming budget have already begun, an official source said this is a pressing issue and the government is looking at it in detail.

The average capital adequacy ratio of government banks, which was 11.18% in March came down to 10.67% as of the quarter ended June, according to the official data.

To be in line with Basel-III norms, there is a requirement to infuse `2,40,000 crore as equity by 2018 in state-owned banks.

The banks will raise capital from the market in a phased manner. The UPA government, in the interim budget, provided `11,200 crore to public sector banks as recapitalisation exercise.