Credit growth took off after move to recapitalise public sector banks: Govt

The Centre's move to recapitalise public sector banks (PSBs) has resulted in a surge in credit growth, a sign of revival of private sector investment in the country, a top finance ministry official said today.

Financial services secretary Rajiv Kumar said the banking sector posted a double digit growth on year-on-year basis in December 2017.

"Surge in credit growth: Sustained momentum post-PSB recap decision - Banking sector posts double digit (10.7% Y- o-Y) growth in Dec'17, up from (7.2% Y-o-Y) in Oct'17, powered by #services & #retail," Kumar tweeted.

Earlier this week, Parliament gave its approval for issuance of Rs 800 billion (rpt) crore recapitalisation bonds to PSBs to improve their balance sheets so that their lending capacity is enhanced.
 

Besides, the finance ministry approved the proposal for infusion of Rs 75.77 billion in six weak public sector banks as part of the recapitalisation plan to bolster capital adequacy ratio.

All these banks, which got capital support, are under the prompt corrective action of the Reserve Bank of India.

The funding comes under Indradhanus plan of the government which promised Rs 700 billion over a period of four years ending March 2019.

Lenders, which will receive capital through the preferential issue of shares, include Bank of India, IDBI Bank, and UCO Bank. The actual fund infusion will take place in the next few weeks after they get necessary regulatory approval, including the nod from shareholders.

Finance Minister Arun Jaitley in October had announced an unprecedented Rs 2.11 trillion two-year roadmap to strengthen PSBs, reeling under high non-performing assets (NPAs) or bad loans. Their NPAs increased to Rs 7.33 trillion as of June 2017, from Rs 2.75 trillion in March 2015.

The plan includes floating re-capitalisation bonds of Rs 1.35 trillion and raising Rs 580 billion from the market by diluting government's stake.

In the last three-and-a-half years, the government pumped in Rs 518.58 billion capital in the PSBs.