Budget 2022 | No proposal for fresh capital infusion into PSU banks this year

In her Union Budget 2022-23 speech, FM NIrmala Sitharaman said that any cess or surcharge on income will not be allowed as business expenditure.

Union Finance Minister Nirmala Sitharaman on February 1 didn’t earmark any specific amount for public sector banks (PSBs) for the financial year 2022-2023. The Budget didn't give any clarity on the roadmap for PSB privatisation as well.

In Budget 2021, FM had announced a Rs 20,000-crore capital infusion for PSBs. The state-run banks account for 60 percent of assets in the Indian banking system. These banks also account for about 90 percent of the stressed assets in the system.

As far as privatisation is concerned, the finance minister had announced in her last Budget the plan to private at least two more PSBs but there was no progress on this.

Banks require capital to meet the mandatory reserve requirements laid out by the Reserve Bank of India (RBI), make provisions for bad loans and kick-start the lending cycle when demand revives in the economy.

In Budget 2020, the government didn’t announce any capital infusion for PSBs. Sitharaman said over the years, the government has infused Rs 3.5 lakh crore into the PSU lenders and asked them to move to the capital market for fund-raising purposes.

Despite the government's call to raise money from the market, except a few big ones, weaker PSBs aren’t able to attract investors on account of their bad loan-ridden balance sheets. In 2020, the government announced a major consolidation drive among PSBs. It merged 10 PSBs into four at one go to effect consolidation in the industry.

Scheduled commercial banks' (SCB) gross non-performing assets (GNPAs) declined from  8.2 percent at end-March 2020 to 7.3 percent at end-March 2021 and further to 6.9 percent at end-September 2021, the  RBI said in its report on Trend and Progress of Banking in India 2020-21 released on December 28.

Also, the return on assets (RoA) of SCBs improved from 0.2 percent at end-March 2020 to 0.7 percent at end-March 2021, aided by stable income and decline in expenditure, the report said.

The report has presented the performance of the banking sector, including co-operative banks, and non-banking financial institutions during 2020-21 and 2021-22 so far.

Stress tests have revealed that banks' GNPAs may jump from 6.9 percent of assets in September 2021 to 8.1 percent by this September under a baseline scenario and to 9.5 percent under a severe stress scenario, the RBI said in its Financial Stability Report on December 29.

If the current wave of COVID-19 led by the Omicron variant drags on, the figure could escalate.