Public sector banks set to get Rs 19,000 cr in FY16

IN A bid to revive the public sector banks that are now facing pressure due to mounting bad loans and a host of other issues, the NDA government may infuse Rs 19000 crore in the current financial year.

The government may take the bank investment company (BIC) route - an omnibus holding company model proposed by the P J Nayak committee set up to...

review governance in banks - to meet the capital infusion requirement in public sector banks (PSBs).

Finance secretary Rajiv Mehrishi, in the US with Finance Minister Arun Jaitley to promote investment in India, told a private news channel that the government would infuse Rs 19,000 crore in banks this financial year, adding the amount could double next financial year.

This infusion into the PSBs, which account for more than 70 per cent of all outstanding bank loans, is more than double the Budget estimate for this financial year.

The public sector banks are in dire need for more funds due to rise in non-performing assets (NPAs).

According to ICRA, gross NPAs in the system might rise to 5.9 per cent this financial year from 4.4 per cent in 2014-15.

Since the government is not quite keen to allocate the funds from the Budget, a BIC could be used to meet the huge funding requirement.

By 2018, PSBs will require Rs 2.4 lakh crore of capital to meet Basel-III norms, according to a finance ministry estimate.

However there is a catch. For a BIC to be formed, current Acts like Bank Nationalisation Act, the SBI Act and the SBI (Subsidiary Banks) Act have to be repealed and all banks have to be incorporated under the Companies Act.

The government will then transfer its holdings in banks to the BIC. As per the recommendations of the Nayak committee, a BIC would be constituted as a core investment company, under Reserve Bank of India (RBI) registration and regulation.