Banks to get upfront capital infusion of Rs 70,000 crore from government

The government has decided to inject Rs 70,000 crore budgeted for the recapitalisation of public sector banks in the current financial year, on an immediate basis, Finance Minister Nirmala Sitharaman said. The move will release liquidity to the tune of Rs 5 lakh crore into the banking system for lending.

This comes as a major relief for public sector banks that are in dire need for capital amid higher provisioning against bad loans.

Most public sector banks had expressed intent to raise capital from the market in the second half of the current financial year. However, it would be difficult to lure investors with weak balance sheets and deteriorating asset quality. In such a scenario, they were highly dependent on backing from the government that owns a majority stake in public sector banks, analysts said.

Bank of Baroda, Union Bank of India, Punjab National Bank, IDBI Bank, Syndicate Bank and Central Bank of India among others have expressed their intention of raising capital from the markets by the third quarter.

The government had budgeted Rs 70,000 crore for recapitalisation of public sector banks in 2019-20. The Reserve Bank of India (RBI) had raised concerns on lenders' capital adequacy levels in its June 2019 Financial Stability Report.

RBI said five banks may have their Capital-to-Risk weighted Assets Ratio (CRAR) below the minimum regulatory level of 9 percent by March 2020, without any planned recapitalisation by the government. Under severe macroeconomic stress, as many as nine banks may see a fall in below 9 percent; while five may see their Common Equity Tier (CET) 1 capital ratio below 5.5 percent by March 2020.