Capital requirement of PSU banks may be reviewed by Finance Ministry: Experts

By the end of second quarter, the capital requirement of PSU banks may be assessed by the finance ministry after getting a clarity about an increase in bad loans. In the wake of economic slowdown in India caused by the Covid-19 pandemic, the experts believe that the non-performing assets (NPAs) of the banks may witness a surge.

As per Reserve Bank of India (RBI), this will need higher provisioning by banks, although there could be a silver lining if RBI accepts request of loan restructuring. The things may turn turtle for NPA after the extended motarium ends in the month of August. 

On the other hand, it will be appropriate to assess the capital requirement only at the end of second quarter. According to Veteran banker and CII President Uday Kotak, financial support is required by the public sector banks to drive the economy. Private banks will also need to raise capital from different bases to overcome the hurdles. 

A shortfall of around 15 billion USD has been projected by the ratings agency Fitch by Indian banks to achieve a 10 per cent Weighted Average Common equity tier-1 (CET 1) ratio under moderate stress and in the absence of which banks would show high risk aversion.     

In the FY21, the banking sector’s NPAs were expected to increase by 450 basis points. The government on the other hand, has infused more than 3.15 lakh crore rupees into public sector banks in the 11 years. The government had planned to make an infusion of Rs 70,000 crore capital into PSU Banks in 2019-20. 

However, it abstained from promising any capital in Budget 2020-21 for PSBs. Overall the government has infused Rs 65,443 crore in PSU banks in the last financial year as both regulatory and growth capital.       

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