There are 21 Public Sector Banks which are the state-owned banks in India. Public sector banks account for 70 percent of total banking assets in India. The ‘lack of dynamism’ in banking practices at the bank level and at the Finance Ministry level to control judiciously the flow of finance and recovery system to stop an account from turning into NPA, keeps these Public Sector Banks starved of funds and crying for more capital infusion every now and then. The government through RBI infuses funds into these banks with the help of the Bank Recapitalization method.
Since the government has a majority stake in Public Sector Banks, it has to inject capital through the Recapitalization in these banks. The government of India has proposed to infuse 2.11 Lakh Crores in the Public Sector Banks towards recapitalization. The government proposes to issue Recapitalization bonds, raise equity from the market and make the budgetary allocation.
Why the need of Bank Recapitalization?
Most of the PSBs have huge stocks of non-performing loans on their balance sheets. As of June 2017, the NPAs of the banking system was as high as 10.2 % of the loans advanced by the banks. This ratio increased to 12.2% by the end of September 2017.
The volume of bad debt hit 9.46 trillion rupees at the end of half of the financial year 2017 in September 2017. Out of this the share of public sector banks is 8.25 trillion rupees in the pile of bad loans. The banks' deteriorating balance sheets have limited their ability to lend, and that has affected the bank credit growth in India. The bank credit growth in the year 2016-17 was 5.1 %, which is the lowest since 1951. Hence, a massive recapitalization was deemed as necessary to clean up the balance sheet of the banks.
- The total recapitalization will cross Rs. 1 Lakh crore in the fiscal ending March 31, 2018, after including funds raised from the sale of shares to external investors.
- The banking sector in India has Rs. 10 Lakh crore worth NPAs. PSBs account for the bulk of the non-performing assets (NPAs).
- Ministry of Finance will raise Rs. 80,000 crore through recapitalization bonds and provide another Rs. 8,139 crore from the Budget to recapitalize the banks.
- IDBI Bank has the highest stressed-loan ratio. It will get the biggest chunk of the money of Rs. 10,610 crore in Bank Recapitalization. The biggest lending bank- State Bank of India (SBI) will get Rs. 8,800 crore, and the second-biggest lender Punjab National Bank (PNB) will get Rs. 5,473 crore.
- Indian Bank is the only profitable publish sector bank. It is the only bank that will not get any capital in the latest Recapitalization.
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