Union Budget 2024: PSBs well capitalised, capital infusion unlikely, say experts

Finance Minister Nirmala Sitharaman will announce the Interim Budget for 2024-25 on February 1.

India’s public sector banks (PSB) are unlikely to see any capital infusion in the Interim Budget to be presented on February 1, 2024, experts said. This comes after data from the Reserve Bank of India (RBI) and banks showed that the non-performing asset (NPA) numbers of the banks are at a record low and that they are well capitalised.

The gross non-performing assets ratio of scheduled commercial banks declined to a multi-year low of 3.2 percent and their net non-performing assets ratio eased to 0.8 percent in September 2023, the Reserve Bank of India said in its Financial Stability Report for December.

“Banks now have no NPA pressure as all the major bad loans they had have gone,” said Chandan Sinha, a former Executive Director of the RBI.

“Problems of PSBs were solved after the asset quality review. After recognising the problems, the government funded the banks and the banks also raised capital. Additionally, they worked on improving recovery and non-performing assets, which further changed the ecosystem. Hence, capital infusion will not happen this time,” said Sanjay Agarwal, a Senior Director at CareEdge.

PSBs have undergone capital infusion three times in the last 10 budgets, amounting to a total of Rs 3.35 lakh crore. Capital infusion in PSBs serves two primary purposes: meeting regulatory requirements, and sustaining robust credit growth cycles in comparison to private banks.

The government proposed capital infusion of Rs 2.40 lakh crore as equity in PSBs by 2018 in the FY15 budget. An additional Rs 25,000 crore in PSBs was announced in the FY17 budget. Most recently, Finance Minister Nirmala Sitharaman said in her FY20 budget speech that PSBs will be provided with capital infusion of Rs 70,000 crore.

The government has also infused capital in PSBs outside the budget. In February 2021, Sitharaman announced capital infusion of Rs 20,000 crore in PSBs for FY22. In March that year, the government announced capital infusion of Rs 14,500 crore in four PSBs through zero-coupon bonds.

RBI also said that macro stress tests for credit risk reveal that scheduled commercial banks would be able to comply with minimum capital requirements, with the system-level capital to risk-weighted assets ratio (CRAR) in September 2024 projected at 14.8 percent under baseline stress, 13.5 percent under medium stress and 12.2 per cent under severe stress scenarios.

Stake in banks

The Central government and state governments own a 57.49 percent stake in the State Bank of India, the country’s largest lender, according to the latest data available. Governments (central and states) own 63.97 percent in Bank of Baroda and 73.15 percent in Punjab National Bank.

In Union Bank of India, Canara Bank and Central Bank of India, the government holding is at 76.99 percent, 62.93 percent and 93.08 percent, respectively.

In Indian Bank, Bank of Maharashtra and Bank of India, the government shareholding stood at 73.84 percent, 86.46 percent and 73.38 percent respectively. And the Central and state governments owned 98.25 percent in Punjab and Sind Bank, 96.38 percent stake in Indian Overseas Bank and 95.39 percent stake in UCO Bank.

In an election year, the government presents only an Interim Budget or seeks a vote on account, and leaves it to the next government to present the full budget.