FinMin may finalise capital infusion plan for public sector banks by Dec

New Delhi: The finance ministry is working on capital infusion strategy for the public sector banks (PSBs) and it is expected to be finalised by December, according to official sources.

The Department of Financial Services is assessing the capital needs of various banks based demands made by them, sources said.

There are various parameters which are being looked at for capital infusion exercise, including NPA ratio, credit growth, insolvency proceeding etc, sources said, adding that the second quarter result would also give clarity on the capital requirements for the current fiscal.

Various factors are being considered before arriving at the exact number and the final output is likely by next month or December, they said.

Besides providing capital for meeting regulatory requirements, the ministry is looking at providing capital to performing state-run banks to boost credit disbursement.

One of the options on the table is issuance of capitalisation bond for meeting their capital needs but no final decision has been taken yet.

The government followed a similar strategy in 2008 when it sold bonds worth about Rs 10,000 crore to subscribe to nearly 60 per cent of State Bank of India's rights issue.

Last week, Finance Minister Arun Jaitley said the government, faced with a 'catch-22 situation' over the issue of non-performing assets, is working on a plan to rebuild the capacity of India's banking sector so as to support growth.

Banks are facing mounting non-performing assets (NPAs) or bad loans to the tune of Rs 8 lakh crore of which PSBs alone account for Rs 6 lakh crore. The bank NPAs are skirting the double digit mark at present and expected to grow further.

Although the Indradhanus scheme has assigned Rs 10,000 crore for the current fiscal, it may prove insufficient due to high provisioning requirement for bad loan resolution through various processes, including insolvency and bankruptcy proceedings.

Last year, the ministry provided capital to banks in two tranches. As many as 13 public sector banks together got Rs 22,915 crore in the first tranche announced in July 2016.

In the budget speech on February 1, Finance Minister Arun Jaitley announced capital infusion of Rs 10,000 crore for the current fiscal.