The Finance Ministry has said it is finding it difficult to finalise the recapitalisation programme for public sector banks due to the Supreme Court stay on classification of loan accounts as non-performing assets.

“Any amount can be thought of, if there is estimation of NPA. On account of the Supreme Court’s interim order, it is not possible as of now,” a senior government official told BusinessLine . In its order dated September 3, the apex court had said that the accounts that were not declared NPA till August 31, 2020 shall not be declared NPA till further orders. The six months loan moratorium period ended on August 31, under which borrowers were given the option to defer their EMI (equated monthly instalment).

Last week, in an interview, Financial Services Secretary Debashish Panda said: “We recognise the need to adequately capitalise the banks. Action for further capitalisation will be taken at the appropriate time. During 2017-18 to 2019-20, the government infused ₹2.65-lakh crore into PSBs.

Provision in the Budget

The Finance Ministry makes a provision for recapitalisation in the Budget to strengthen the balance sheet of banks and raise resources. One of the key factors for recapitalisation is NPAs. If banks make a provision for NPAs out of their earnings, less money will be available for reserves. This increases the demand for resources, which will be met through recapitalisation.

Token provision

Since the Centre is the largest shareholder of PSBs, it needs to provide money for recapitalisation. In the FY20-21, the Centre provided a token ₹1-lakh each under heads – ‘Recapitalisation of Public Sector Bank (under which infusion is done through Gross Budgetary Support)’ and ‘Recapitalisation of Public Sector Bank through issue of Government Securities’ (under which infusion is done through Government-issued bonds).

Later in the Supplementary Demands for Grants, as approved by Parliament during the winter session, the Centre made a provision of ₹20,000 crore for recapitalisation of PSBs through issue of government securities. Of this, ₹5,500 crore was given to Punjab & Sind Bank, while no decision has been taken on the balance amount.

The RBI has already pleaded before the Supreme Court to lift the stay on classification of loan accounts as NPAs. “It is submitted that this Hon’ble court had given an across-the-board stay on classification of any account as NPA till further orders. If the stay is not lifted immediately, it shall have huge implications for the banking system, apart from undermining the regulatory mandate of the RBI,” the central bank had said in a counter affidavit filed before the Court in October.

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