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Budget 2020: What lies in store for state-run banks ravaged by bad debt?

State-run banks will require substantial capital infusion to resume lending to productive sectors once demand picks up, analysts said

January 09, 2020 / 16:42 IST
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Finance Minister Nirmala Sitharaman has her task cut for the Indian banking sector in the upcoming Budget. There are quite a few long-pending issues that need to be fixed to put Asia’s third largest economy back on track.

More capital State-run banks will require substantial capital infusion to resume lending to productive sectors once demand picks up, analysts said. Over the last five years, these banks had to set aside over Rs 4 lakh crore in provisions towards bad loans. In comparison, private sector banks’ provisions for bad loans during this period totalled Rs 88,000 crore.

“There is not enough credit demand at the moment. But that may not be the case next year when growth begins to pick up. Banks need to be funded well to resume lending to industries,” said a banking analyst.

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Since coming to power in 2014, the Narendra Modi-government has pumped in around Rs 2.8 lakh crore in state-run banks. In FY20 so far, the government has infused close to Rs 70,000 crore as capital. But that was inadequate considering the fact that banks required a substantial chunk of money to clean up their bad loans besides meeting their Basel-III requirements.

Recently, PTI reported that the government is unlikely to announce capital infusion for the PSBs in the upcoming Budget. Instead, the government wants banks to expedite recovery of bad loans and raise funds from the market. The government also wants state-run banks to sell their non-core assets and generate money.