(LiveMint)
The finance ministry does not plan to increase allocation of funds beyond what has been budgeted to shore up capital buffers of state-run banks as it expects the lenders to resolve some of the bad loans weighing them down, a ministry official said. Most state-controlled banks reported huge losses in the year ended 31 March after the Reserve Bank of India asked them to end all loan restructuring schemes. This increased the pile of bad loans. The huge losses wiped out the entire ₹1 trillion capitalization done by the government in 2017-18.
The losses prompted Arvind Subramanian, the former chief economic adviser to the finance ministry whose tenure ended last week, to seek additional capital infusion for state-run banks. Last year, the government unveiled a ₹2.1 trillion capitalization plan spread across two years through a mix of direct capital infusion, recapitalization plans and fund raising from the market. For the current financial year, the government has budgeted ₹65,000 crore to capitalize state-run banks.
“Banks are reporting a turnaround in the first quarter results. Other banks like Punjab National Bank (PNB) may also see a recovery. Money stuck in cases getting resolved in IBC (Insolvency and Bankruptcy Code) will start to flow in. So, as of now, we don’t see any reason for increasing the capital allocation,” the senior finance ministry official quoted above said on condition of anonymity.
