 "PSBs may get Rs 12k-cr extra capital in FY17")
The government is planning to inject Rs 10,000-12,000 crore in public sector banks (PSBs) in the current financial year, over and above Rs 25,000 crore provisioned in the Budget, to help them sail through the mounting bad loans.
Senior PSB executives have sought additional recapitalisation from the government to meet capital adequacy requirements. Finance minister Arun Jaitley has repeatedly said if PSBs require additional recapitalisation, the government would provide the resources.
"We have already taken into account additional capital requirement by banks. An additional amount of around Rs 10,000-12,000 crore will not be a problem and not affect the 2016-17 fiscal target of 3.5 per cent of the gross domestic product (GDP)," said a senior government official.
Additional allocation, if provided, would take the government's total capital infusion in PSBs to Rs 35,000-37,000 crore in FY17, compared with Rs 25,000 crore in FY16.
If all sources of revenue and expenditure remain as budgeted, this additional spending will take fiscal deficit to Rs 5.45 lakh crore, or 3.6 per cent of the GDP.
While the sources didn't divulge the spending adjustments that the Centre will have to make for this purpose, they said it would be an uphill task. Jaitley has had to allocate an additional Rs 1.06 lakh crore for the Seventh Pay Commission and One Rank One Pension scheme in FY17. The government has also allocated nearly Rs 2.5 lakh crore for infrastructure and has had to boost spending on schemes like Pradhan Mantri Krishi Sinchayee Yojana, Rashtriya Krishi Vikas Yojana, and National Rural Employment Guarantee Scheme, among others, after two years of drought.
A sum of Rs 10,000-12,000 crore may seem like small change when compared with these amounts, the policymakers in North Block will hope to maintain the additional revenue-generating measures like the duties on petrol and diesel. In all, the government has raised excise duty on petrol by Rs 11.77 a litre and on diesel by Rs 13.47 a litre in the second half of calendar year 2014 and 2015. With global crude oil prices rising, the Centre may be forced to pare back some of these duties.
The state owned-banks, reeling from record non-performing assets (NPAs), require additional capital to not only meet capital adequacy standards but also to gear up for Basel-III capitalisation norms, which kick in from 2018.
Greater provisioning requirement for NPAs severely hit earnings of PSBs in the third and the fourth quarter of 2015-16. They posted around Rs 20,000 crore losses in Q4 FY16 alone. Bad loans of PSBs rose from Rs 2,67,065 crore in March 2015 to Rs 3,61,731 crore in December. The gross NPAs increased from 5.43 per cent to 7.30 per cent for the same period. In the previous financial year, the government provided Rs 25,000 crore in three tranches.
Of the Rs 1.8-lakh-crore capital requirement for Basel-III, the government has promised to provide Rs 70,000 crore over a four-year period through Indradhanush. It has asked banks to raise the remaining Rs 1.1 lakh crore from the markets. Of the amount promised by the Centre, PSBs received Rs 25,000 crore in FY15 and were supposed to get an equivalent amount this year, followed by Rs 10,000 crore each in FY18 and FY19.
The additional capital infusion would help the banks further. Banks have already taken permission from the government, but are yet to tap into the markets due to persistent volatility.
