Finance Minister Nirmala Sitharaman on Friday announced that public sector banks will be provided with a capital infusion of Rs 70,000 crore. The minister said this was being done to boost the credit flow to the economy.
“Having addressed legacy issues, Public Sector Banks are now proposed to be further provided [Rs] 70,000 crore capital to boost credit for a strong impetus to the economy,” Sitharaman said while presenting her first Union Budget in Parliament. “To further improve ease of living, they will leverage technology, offering online personal loans and doorstep banking, and enabling customers of one Public Sector Bank to access services across all Public Sector Banks.”
Reforms will also be undertaken to strengthen governance in public sector banks, Sitharaman said but did not give information about any specific measure.
Sitharaman also said that six public sector banks have already been brought out of the Prompt Corrective Action framework. Indian banking sector, she said, saw Rs 1 lakh crore of non-performing asset resolution and recovery of Rs 4 lakh crore through the Insolvency and Bankruptcy Code mechanism in the last four years.
Prime Minister Narendra Modi led-Bharatiya Janata Party has been forced to infuse record amounts of capital into PSU banks following an asset quality review amid allegations that lenders were hiding the extent of the bad debts on their books. It was initiated by the Reserve Bank of India in 2015 and led to surge in bad loans that were reported and necessitated an increase in provisions.
“Over the last five financial years, PSBs have been recapitalised to the extent of Rs 3.19 lakh crore, with infusion of Rs 2.5 lakh crore by the government and mobilisation of over Rs 66,000 crore by PSBs themselves,” Sitharaman had informed the Parliament on June 24.
The capital infusion in public sector banks will ensure that economic growth does not suffer.