Moneycontrol Bureau
Shares of state-run banks gained 1-4 percent intraday Tuesday after government provided recapitalisation fund to 13 PSU banks that have high non-performing loans and stressed assets.
The government has allotted Rs 22,915 crore in the first tranche of bank recapitalisation.
"Consequent upon the capital infusion exercise for the current year, 75 percent of the amount collected for each bank is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market," says the government in its release.
After the announcement under the Indradhanush and the Union Budget, the government has undertaken an exercise to assess the capitalisation needs of public sector banks during the year 2016-17. The capital infusion exercise for the current year is based on an assessment of need as assessed from the CAGR of credit growth for the last five years, banks' own projections of credit growth and an objective assessment of the potential for growth of each public sector bank.
The government says the remaining amount, to be released later is linked to performance, with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations.
Weak global growth, slowdown in infrastructure growth, lack of government's initiatives, fall in commodity prices etc hit profitability of corporates, due to which they failed to pay interests on debts taken for their projects, expansions, working capital requirements etc. Ultimately that resulted increase in bad loans for banks.
To clean up balance sheets, the Reserve Bank of India launched asset quality review in 2015 that showed nearly 70 percent increase in non-performing assets of banks in October 2015-March 2016 period.
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