Central Banking Do public sector banks in India need more funding?

Central Banking Do public sector banks in India need more funding?

Central Banking Do public sector banks in India need more funding?

The government may decide not to declare a new capital injection in the budget if it has an adequate capital position and improved asset quality.

It seems improbable that Finance Minister Nirmala Sitharaman would declare a capital injection for PSBs in the Union Budget for 2024.

In terms of problematic loans and capital adequacy, the Indian banking industry has done much better during the last several years. According to the Reserve Bank of India's December Financial Stability Report, the net non-performing asset (NPA) ratio of scheduled commercial banks is predicted to drop to 0.8% by September 2023, having dropped to a multi-year low of 3.2% in the gross NPA ratio. Proceeded.

Additionally, according to the RBI report, macro stress tests for credit risk indicate that scheduled commercial banks will be able to meet the minimum capital requirements, alongside an estimated system-level capital to risk-weighted assets ratio (CRAR) of 13.5 percent under the age of moderate stress and 12.2 percent under severe stress scenarios under baseline stress in September 2024.

In the previous ten budgets, public sector banks (PSBs) have received three infusions totaling Rs 3.35 lakh crore. The two major goals of capital investment in PSBs are to comply with regulations and to keep up a higher loan growth cycle than in private banks.

In the FY 2015 budget, the government projected to inject Rs 2.40 lakh crore as equity in PSBs by 2018. Budgetary announcements for FY 2017 included PSBs worth an extra Rs 25,000 crore. In her FY20 budget address, Finance Minister Nirmala Sitharaman recently announced that PSBs will get capital of Rs 70,000 crore.

Outside of the budget, the government has also contributed capital to PSBs. Sitharaman said in February 2021 that PSBs will get Rs 20,000 crore in capital in FY22. The government declared in March of that year that it would use zero-coupon bonds to inject Rs 14,500 crore in capital into four PSBs.

The federal government and state governments together own 57.49 percent of State Bank of India, the nation's biggest lender, according to the most recent statistics available. The national and state governments own 63.97 percent of Bank of Baroda and 73.15 percent of Punjab National Bank.

The government owns 76.99 percent, 62.93 percent, and 93.08 percent of Union Bank of India, Canara Bank, and Central Bank of India, respectively.

The government held 73.84 percent, 86.46 percent, and 73.38 percent of Indian Bank, Bank of Maharashtra, and Bank of India, respectively. In contrast, the Central and State Governments own 96.38 percent of Indian Overseas Bank, 95.39 percent of UCO Bank, and 98.25 percent of Punjab and Sindh Bank.

The government may decide not to disclose a new capital injection in the budget if asset quality has improved and capital position is adequate. When there is an election, the current government merely provides an interim budget or asks for a vote on accounts, delegating the job of presenting the whole budget to the next administration. Major announcements in the next interim budget are thus unlikely. Regarding PSB recapitalization, this Budget is probably going to turn out to be a non-event for the banking industry as well.

(Banking Central is a weekly feature that helps readers make sense of the most significant events in the industry by closely examining them.)