The Ministry of Finance will invest Rs500cr in public sector banks (PSBs) to boost their capital. However, it will depend on improvements in performance and efficiency. It is expected that in the current fiscal year, eight lenders would benefit from this last round of capitalisation, including Indian Bank, Syndicate Bank and Vijaya Bank.
One of the officials from the Ministry said, “We are committed to support PSBs but the onus is on them to improve their profitability and return on assets (RoA), which will be the key factors before allocating any further amount.”
The Government has allocated Rs25,000cr for bank capitalisation in FY16. Out of this, Rs5000cr was to be provided in the second supplementary this year. However, it did not seek any funds towards bank capitalisation in the second batch of supplementary demands for FY16.
For FY16, the allocation for bank capitalisation has been raised to Rs25,000cr from the initial budgetary allocation of Rs7,940cr.
With an allocation of Rs5,531cr, country’s biggest lender State Bank of India (SBI) was the biggest beneficiary in the first round of capitalisation of this fiscal.
M P Shorawala, an independent director with Central Bank of India, said, “The Ministry estimates that the state-run banks will need Rs 1.8 lakh crore of additional capital in the next four financial years, of which Rs 1.1 lakh crore will be raised from market. Experts, however, feel tapping the markets will be difficult given the bad loan burden of state-run banks. “If they are looking at qualified institutional placements (QIPs), there may be some takers, mostly insurers such as Life Insurance Corporation.”
The Ministry of Finance has also identified six banks- Bank of India, Bank of Maharashtra, IDBI, Indian Overseas Bank, UCO Bank and United Bank of India that need special attention to arrest bad loans.