₹2.11 lakh crore for public sector banks banks to boost lending

The Union government unveiled an ambitious plan to infuse ₹2.11 lakh crore capital over the next two years into public sector banks (PSBs) that are saddled with high, non-performing assets (NPAs) and facing the prospect of having to take haircuts on loans stuck in insolvency proceedings.

The move is vital for the slowing economy, as private investments remain elusive in the face of the “twin-balance sheet problem” afflicting corporate India and public sector banks reflected in slow bank credit growth.

Several economists opine that the recapitalisation of banks — so that they can lend more freely and help revive private investment — is critical for revitalising the growth momentum at a time when the global economy is recovering.

This would be funded through budgetary provisions of ₹18,139 crore and the sale of recapitalisation bonds worth ₹1.35 lakh crore. The balance would be raised by the banks themselves by diluting the government’s equity share.

“Indiscriminate lending earlier by banks led to a high level of NPAs,” Finance Minister Arun Jaitley said. “And these NPAs were kept under the carpet. Now they have come to light because of the Asset Quality Review conducted by the Reserve Bank of India.”

The capital infusion would also be accompanied by a series of banking sector reforms, Mr. Jaitley said, without providing any specifics, adding that the measures would be revealed in the coming months.

Courtesy: The Hindu

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