Will FinMin comply with RBI request to double capital infusion in PSU banks?

BATTING or the beleaguered public sector banks (PSBs), especially the small and non-performing ones, the Reserve Bank of India (RBI) has urged the finance ministry to double its capital infusion into the banks. The PSBs are facing high levels of bad loans and poor growth.

Quoting official sources a leading...

electronic media said that RBI has written to the Finance Ministry urging them to increase capital infusion into the public sector banks.

In February of this year, the government had announced a capital infusion of Rs 7,940 crore for state-run banks, which is nearly half of what they require and lower than the amount the government had committed for fiscal year 2015.

Last year, of the promised Rs 11,200 crore, only Rs 6,990 crore capital was infused in selective banks, based on their performance parameter.

RBI even in its June 2 monetary policy statement had highlighted the need for targeted capital infusion of bank capital into scheduled public sector banks to ensure adequate capital flows to the productive sectors as investment picks up and to clean up stressed assets in their balance sheets.

RBI has also asked the Finance Ministry to review capital allocation and urged them to more than double the amount that had been allocated for the fiscal initially.

Meanwhile, PSBs that will get fresh capital of Rs 7,940 crore from the government this fiscal are likely to benefit from an additional infusion in the year.

Finance minister Arun Jaitley on June 12 held a three-hour performance review meeting with PSB chiefs and after the meeting said that the state-owned lenders “put up a strong case” for additional capital and that he saw merit in their demand.

The minister also hinted at a calibration of the high interest rates on small savings schemes as banks argued this is one factor that comes in the way of their efforts to transmit the recent repo rate cuts, especially given their limited ability to cut deposit rates.

PSBs sought relaxation of the recapitalisation criteria by shifting from the performance-based ones introduced in January to a need-based approach. The banks also suggested that the proceeds of the proposed Swachh Bharat cess could be given to them to shore up their capital base.

The ministry asked each PSB to make a presentation before the department of financial services (DFS) on their capital requirement. While UCO Bank, United Bank of India and Allahabad Bank made their presentations on June 12 itself, others will do so soon and the exercise will be completed by July 3.