Finance Minister Shri Arun Jaitley said today that the Government has laid down a long term four year plan for Bank capitalization .He added that It is a long overdue step, Government in the past has talked about it,But this time government is actually implementing it.This will gave a boost for investment and growth in India. He was speaking in connection with the supplementary demand for grants of 2015-16 being laid in the Parliament today, in which Rs 12000 crore has been provided for bank capitalization. Government also proposes to make available Rs.70,000 crores out of budgetary allocations for four years.
The Public Sector Banks (PSBs) play an important role in the economy of India. Of late, because of variety of legacy issues including the delay caused in various approvals as well as land acquisition etc., and also because of low global and domestic demand, many large projects are strained. Public Sector Banks which have got predominant share of infrastructure financing have been affected by this phenomenon. It has resulted in lower profitability of Public Sector Banks, mainly due to provisioning for the restructured projects as well as for gross NPAs.
As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI norms. However, the Government of India wants to adequately capitalize all the banks to keep a safe buffer over and above the minimum norms of Basel III. We have, therefore, estimated how much capital will be required this year and in the next three years till FY 2019. If we exclude the internal profit generation which is going to be available to PSBs (based on the estimate of average profit of the last three years), the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore. This estimate is based on credit growth rate of 12% for the current year and 12 to 15% for the next three years depending on the size of the bank and their growth ability. We are also presuming that the emphasis on Public Sector Bank’s financing will reduce over the years by development of vibrant corporate debt market and by greater participation of Private Sector Banks.