Govt to invest Rs 70,000 cr over four years in Public Sector Banks

Finance Minister Arun Jaitley on Wednesday said the government has laid down a long term four year plan for Bank capitalization in which the government proposed to make available Rs 70,000 crores out of budgetary allocations over four years.

In the Supplementary Demand presented on Wednesday in Parliament, an amount of Rs 12,000 crore has been provided, in addition to Rs 7,940 crores already provided in the budget of  FY  2015-16. The remaining Rs 5,000 crore would be provided in the second Supplementary later this year. The Rs 25,000 crore capital this year will be allocated through three tranches to meet three different objectives. These are:

Tranche 1: About 40 per cent of this amount will be given to those banks which require support, and every single PSB will be brought to the level of at least 7.5 per cent by Financial Year 2016.

Tranche 2: 40 per cent capital will be allocated to the top six big banks viz SBI, BOB, BOI, PNB, Canara Bank, and IDBI Bank in order to strengthen them to play a vital role in the economy.

Tranche 3: The remaining portion of 20 per cent will be allocated to the banks based on their performance during the three quarters in the current year judged on the basis of certain performance.  This will incentivise them to improve their performance in the current year.

Of late, because of variety of legacy issues including the delay caused in various approvals as well as land acquisition etc, and also because of low global and domestic demand, many large projects are strained. Public Sector Banks (PSB)  which have got predominant share of infrastructure financing have been affected by this phenomenon. It has resulted in lower profitability of Public Sector Banks, mainly due to provisioning for the restructured projects as well as for gross NPAs.

Jaitley said the government was also presuming that the emphasis on PSBs financing will reduce over the years by development of vibrant corporate  debt market and by greater participation of Private Sector Banks.