The government is unlikely to announce capital infusion for PSU banks in Budget
NEW DELHI: The government is unlikely to announce the infusion of capital for public sector banks (PSB) in the next Budget and will rather encourage them to accelerate the recovery of bad loans and raise funds from the market.
In addition, according to sources, banks may also seek to divest or sell their non-core businesses as part of the fundraising exercise during 2020-21.
Finance Minister Nirmala Sitharaman is expected to present the second budget of the Modi 2.0 government on February 1.
According to sources, banks have a solid line of recovery of the resolution of NCLT and non-NCLT cases during this calendar year and also the margin to raise market capital.
The provision coverage ratio of public sector banks is at a maximum of 7 years of 76.6%.
In some of the non-productive assets, banks have made provisions of up to 100%, sources said, adding that the recovery of those accounts will be part of the bottom line.
The share price of some of the banks is being reaffirmed, which gives them the opportunity to dilute government participation, sources said.
The country's largest lender, the State Bank of India (SBI), has already begun the process of diluting its stake in its subsidiaries SBI Cards and Payment Services Ltd and UTI Mutual Fund.
It is looking to sell 50 lakh shares representing 1.01% stake in the National Stock Exchange (NSE).
Other state lenders are performing a similar exercise in an effort to raise capital.
In addition, the government has already charged Rs 68,855 million rupees in advance, of Rs 70,000 crore destined to the infusion of capital for the current prosecutor, to handle the mega-merger plan announced in August 2019.
Among the four anchor banks: National Bank of Punjab received Rs 16,091 million rupees, Union Bank of India Rs 11,768 million rupees, Canara Bank Rs 6,571 million rupees and Indian Bank Rs 2,534 million rupees.
Merge entities such as Allahabad Bank Rs 2,153 million rupees, United Bank of India 1,666 million rupees and Andhra Bank Rs 200 million rupees were provided.
In addition, the Bank of Baroda received a capital infusion of Rs 7,000 crore, Indian Overseas Bank Rs 4,360 crore, UCO Bank Rs 2142 million rupees, Punjab&Sind Bank 787 million rupees and Central Bank of India Rs 3,353 crore.
LIC controlled IDBI Bank It also received an additional capital of Rs 4,557 million rupees through the first complementary demands for subsidies approved by Parliament last month.
With the deadline of March 31 to complete other regulatory requirements, the merged entity will begin to exist from next fiscal year.
Alternative Mechanism of Government of India gave in principle approval for merger of United Bank of India and Oriental Bank of Commerce with National Bank of Punjab , making the proposed entity the second largest public sector bank (PSB).
Syndicate Bank will be merged with Canara Bank, while Allahabad Bank will be amalgamated with Indian Bank.
Similarly, Andhra Bank and Corporate Bank will be consolidated with Union Bank of India.
The government remains committed to maintaining the financial health of public sector banks and will provide capital in case the need arises in the future, sources added.