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The government has decided to infuse capital in public sector banks (PSBs) based on the requirement of individual lenders — which is a departure from the precedent set last year.
The government has asked PSBs to make detailed presentations on their capital requirement for the current financial year. If the government is convinced that a bank needs funds, then it will infuse capital.
The government has earmarked Rs 7,940 crore for capital infusion in PSBs in 2015-16.
Some of the banks such as UCO Bank and United Bank of India had told the government they would not need any capital from the government in the current year. State Bank of India Chairman Arundhati Bhattacharya also said they have not asked for any capital so far from the government.
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The finance ministry met chief executives of PSBs last Friday where the issue of capital infusion was discussed.
“The finance minister said the demand which banks have made for more capital has some basis to that. When the economy is looking to grow, we need growth capital. The growth capital is not so much available as we today have regulatory capital,” Bhattacharya said on the sidelines of an event on Saturday.
Last year, the finance ministry decided to infuse capital in nine PSBs depending on their performance.
Two parameters were applied for identifying the banks. First the weighted average of return on assets for all PSBs, for the last three years put together, was arrived at and all those who were above the average were considered.The government has asked PSBs to make detailed presentations on their capital requirement for the current financial year. If the government is convinced that a bank needs funds, then it will infuse capital.
The government has earmarked Rs 7,940 crore for capital infusion in PSBs in 2015-16.
Some of the banks such as UCO Bank and United Bank of India had told the government they would not need any capital from the government in the current year. State Bank of India Chairman Arundhati Bhattacharya also said they have not asked for any capital so far from the government.
ALSO READ: Capital infusion in PSBs should be based on ability to manage stress
The finance ministry met chief executives of PSBs last Friday where the issue of capital infusion was discussed.
“The finance minister said the demand which banks have made for more capital has some basis to that. When the economy is looking to grow, we need growth capital. The growth capital is not so much available as we today have regulatory capital,” Bhattacharya said on the sidelines of an event on Saturday.
Last year, the finance ministry decided to infuse capital in nine PSBs depending on their performance.
The second parameter used was return on equity (ROE) for these banks for the last financial year.
Those who had performed better than the average had been rewarded, the finance ministry said then.
In FY15, the government infused close to Rs 6,990 crore compared with Rs 11,200 crore that was allocated by the previous government during the interim Budget.
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The Reserve Bank of India (RBI) has been telling the government to allocate more capital for the banks as they need to clean up their balance sheet and should we well capitalised to fund growth when it picks up.
“We have been suggesting to the finance ministry from time to time that the public sector banks need more capital than what Budget has indicated. So, we have been raising this issue at various discussions and forums and it was also formally written by Reserve Bank of India,” RBI Deputy Governor S S Mundra said in New Delhi last week.
