The Union Budget 2017/18 has left public sector banks (PSBs), who control more than two-thirds of the banking in the country, to fend for themselves by allocating a meagre Rs 10,000 crore for recapitalisation.
The finance minister is going by the plan set in motion some three years ago, 'Indradhanush', where the BJP-led NDA government aggressively allocated Rs 70,000 crore capital over four years to PSBs till 2018/19. Out of the promised Rs 70,000 crore , the ministry has already infused Rs 50,000 crore in the last two budgets. In fact , last year it gave away Rs 22,915 crore right at the beginning, in July. While Rs 10,000 crore is as per the four year plan , the financial situation of PSBs has deteriorated in a big way and there is no hope of a faster recovery in the near future. Credit growth has tumbled and banks are not making enough money to cover the escalating provisioning for NPAs.
The banks, which have the option of bringing down the government stake to 52 per cent, will have to take some tough decisions. Clearly , they have to make some distress sale of shares . But in the last two years, the stock market has been stagnant in terms of index returns. The other route is to be aggressive in recovering NPAs as the numbers have reached unimaginable proportions. Last but not the least , the banks also have to let go of their non-bank businesses like mutual funds , insurance, capital markets, etc.
Some say that the government could take the help of LIC to rescue banks with low capital adequacy of 9 per cent.