The Indian Finance Ministry on Friday sought Parliament’s nod to spend an additional Rs 25,500 crore in the current fiscal, nearly half of which will be spent on capital infusion into state-owned banks to help them overcome the high bad loans situation.
Finance Minister Arun Jaitley, in the first supplementary demands for grant presented in Parliament, sought approval for gross spending of Rs 40,821.88 crore. Net cash expenditure would however be lower at Rs 25,495.24 crore after accounting for savings or enhanced receipts/recoveries of Rs 15,325.62 crore. This spending would be on top of Rs 17.77 lakh crore expenditure provided in the annual Union Budget for 2015-16.
The ministry plans to infuse Rs 12,110 crore as capital in state-owned banks struggling with highest levels of bad debts in 13 years. This is on top of Rs 7,940 crore provided by Jaitley in the Budget for 2015-16.
“Bank recapitalisation plan is comprehensive. We have put in four years plan to push growth and tackle NPA,” he said.
The allocations compare to Rs 6,990 crore of 2014-15, the lowest total since at least 2009.
“Rs 20,000 crore (capital infusion) would happen as early as possible. It can happen by September after we get approval from Parliament,” Financial Services Secretary Hasmukh Adhia told reporters here.
The Finance Ministry in a statement said public sector banks (PSBs) as of now are “adequately capitalized” but would need Rs 1,80,000 crore extra capital over the next four years (up to FY 2019). Of this, the government plans to provide Rs 70,000 crore through budgetary support – Rs 25,000 crore each in current and next fiscal and Rs 10,000 crore each in 2017-18 and 2018-19.
Banks would be required to raise the remaining amount from the market, the statement said.
Besides, the Government has sought Parliament nod for injecting Rs 800 crore as equity in state-owned Air India and an additional Rs 4,000 crore towards Integrated Child Development Scheme and other programmes of the Ministry of Women and child development.
In the Supplementary Demand presented today, an amount of Rs 12,000 crore has been provided, in addition to Rs 7,940 crores already provided in the budget of FY 2015-16.
“The remaining Rs 5,000 crore would be provided in the second Supplementary later this year,” the statement said.
The Rs 25,000 crore capital this year will be allocated in three tranches.
In the first tranche, about 40 per cent will be given to those banks which require support, and every single PSB will be brought to the level of at least 7.5 per cent common equity by financial year 2016.
In the second tranche, a similar amount of capital will be allocated to the top six big banks – SBI, BOB, BOI, PNB, Canara Bank, and IDBI Bank “in order to strengthen them to play a vital role in the economy”.
The remaining portion of 20 per cent will be allocated to the banks based on their performance during the three quarters in the current year.
“This will incentivise them to improve their performance in the current year,” the statement said.
“As of now, the PSBs are adequately capitalised and meeting all the Basel III and RBI norms. However, the Government of India wants to adequately capitalise all the banks to keep a safe buffer over and above the minimum norms of Basel III,” said the Finance Ministry statement.
The ministry’s estimate for capital requirement till FY 2019 was after excluding the internal profit generation of the banks.
The estimate of Rs 1.8 lakh crore was based on credit growth rate of 12 per cent for the current year and 12 to 15 per cent for the next three years.
“We are also presuming that the emphasis on Public Sector Bank’s financing will reduce over the years by development of vibrant corporate debt market and by greater participation of private sector banks,” the statement said.
The ministry felt that PSB’s market valuations will improve significantly due to governance reforms, tight NPA management and risk controls, significant operating improvements and capital allocation from the government.
“Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs 110,000 crore from the market,” it said, adding that the government is committed to making extra budgetary provisions in FY’18 and FY’19, to ensure that PSBs remain adequately capitalised to support economic growth.