Union Finance Nirmala Sitharaman, on Saturday, said a few public sector banks (PSBs) will be encouraged to approach the capital market to raise additional capital.

In her Budget speech, she emphasised that the government has infused about ₹3.50-lakh crore by way of capital into PSBs for regulatory and growth purposes.

“We had earlier approved consolidation of 10 banks into four... Governance reforms would be carried out in these banks so that they become more competitive,” said Sitharaman.

No capital allocation

Karthik Srinivasan, SVP and Group Head, Financial Sector Ratings, ICRA, observed that unlike the past Budgets where the capital allocation for banking sector had always remained a focus, in line with his credit rating agency’s estimates of limited capital requirements of PSBs during FY2021, there has been no capital allocation for PSBs.

“We expect most of the PSBs to turn profitable in FY2021 and raise capital from the markets for their growth requirements,” he said.

Abheek Barua, Chief Economist, HDFC Bank, said those who are disappointed with the absence of more overtures to the financial sector, either in the form of more recapitalisation resources for stressed PSBs or a fiscal commitment to buy out the pile of toxic assets that continue to impede fund flow, might draw some comfort from a measure that government will offer support by guaranteeing securities floated.

CH Venkatachalam, General Secretary, All India Bank Employees’ Association, said: “The Budget talks of allowing banks to access more private capital. This is most unwise. When the main problem of the banks is huge bad loans on account of the private sector, going to them for capital is ridiculous.

“It was expected that some tough actions would be announced to recover bad loans. But their scheme of Insolvency & Bankruptcy Code is being glorified under which the defaulters are being let off without any penalty.”

Related Topics
comment COMMENT NOW