Public sector banks have been allocated Rs 11,200 crore for capital infusion as equity in FY15 in the Interim Budget but finance minister P Chidambaram stressed the lenders should depend more on internal resources such as net profits.
“I am signaling that it is good corporate and business practice to raise your own capital. Unlike other industries, banking requires capital every year and banks should put aside a part of their net profits,” Chidambaram told reporters at the post-Budget press conference on Monday.
The finance ministry had also promised state-owned lenders additional capital infusion for cheaper loans on consumer durables and automobiles. But the Centre’s capital support to state-owned lenders has declined over the last few years. The allocation in the Interim Budget 2014-15 for bank recapitalisation is lower than the Rs 14,000 crore in the current fiscal and the Rs 15,000 crore in 2012-13.
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However, the country’s largest lender State Bank of India raised concerns over the allocation and said it may not be sufficient given the systemic credit growth and migration to the capital-intensive Basel-III framework.
“The proposed provision of Rs 11,200 crore for capital infusion in public sector banks may not be sufficient,” State Bank of India chief economic adviser Soumya Kanti Ghosh said in a note.
In view of the Basel III, or global prudential banking norms, all banks have been planning to shore up their Tier 1 capital despite facing rising bad loans on their bank accounts. “The provision for recapitalisation of the public sector banks will provide the risk capital given the current level of stress as well as provide good buffer for growth capital for the industry as a whole,” said Monish Shah, Senior Director, Deloitte (India).
Non-performing assets (NPAs) of public sector banks rose 28.5 per cent to Rs 2.36 lakh crore in September last year, from Rs 1.83 lakh crore in March 2013.
However, finance minister P Chidambaram that as the economy turns around, banks will be able to contain the NPAs.