In this year's budget, the government may set aside about Rs 25,000 crore for bank recapitalisation for FY22, initial estimates suggest. State-owned lenders were asked about their fund requirement, apart from their plans to raise money and non-performing asset (NPA) numbers to set aside the amount for bank recapitalisation.
The finance ministry has discussed the proposals for bank recapitalisation and fund allocation will depend on a number of key factors."These are some projections which may vary depending on various factors such as the banks' plan to raise capital, and spike in bad loans," a government official aware of the development told The Economic Times.
The bank recapitalisation is expected to help these banks meet regulatory requirements and spur credit growth.
The Centre pumped in about Rs 2.65 lakh crore in public sector banks from FY18-FY20. The overall health of these banks have improved. Experts say since the Centre aims to sell minority stakes in banks, it'll need to infuse more funds in PSBs. For this, the Centre also plans to appoint a consultant, who will assess their eligibility for minority and strategic stake sales.
Notably, the Centre had not allocated funds for PSB in the FY21 budget. However, Rs 20,000 crore was earmarked via a supply demand later.
The Reserve Bank of India (RBI)'s in its Financial Stability Report this month had raised red flags over the likely deterioration in the banks' asset quality and the unintended consequences of easy liquidity in the market.
The RBI said the corporate funding has been cushioned by policy measures and the loan moratorium announced in the face of the pandemic, but stresses would be visible with a lag. "This has implications for the banking sector as corporate and banking sector vulnerabilities are interlinked," said the RBI.
The Central Bank advised that banks need to prepare for these adversities by augmenting their capital bases to support their own business plans and the broader economic recovery process in the post-COVID period.