The first phase of capital infusion into public sector banks is likely to start in February according to sources from the finance ministry. The first phase of the capital infusion will involve the government raising about Rs.70,000 crore worth of capital through recapitalisation bonds. The recapitalisation drive was initiated by the government in order to boost credit growth in the country.
The funding amount will be front-loaded as mentioned by the government in its original announcement. This funding will cause some impact on the country’s budget. However, the government is prepared to tackle this through the subsequent credit growth following the investment.
The government has announced in October that PSU banks in the country will be getting capital infusion to the tune of Rs.2.11 crore. This move was seen as a major step to revive lending in the country. Under this plan, Rs.1.35 crore will be raised through recapitalisation bonds, Rs.18,139 crore through budgetary provisions, and the remaining Rs.58,000 crore will be raised by banks themselves.
Banks are expected to raise their part from the market through qualified institutional placements (QIP). A week ago, the country’s second-largest public-sector bank Punjab National Bank raised Rs.5,000 crore through QIPs at a price of Rs.168 per share. Other banks such as Bank of Baroda, Union Bank of India, Andhra Bank, etc. are expected to follow suit in the coming days.
The capital infusion plan put forth by the government came as a relief at a time when public sector banks are facing extreme difficulties due to non-performing assets and bad loans. Insolvency proceedings are underway for many cases, but banks are expected to lose money in these proceedings.
According to many experts, this capitalisation initiative is vital at a time when the country’s economy is reviving. Since private investments have slowed down in the country, this move will be helpful in boosting credit growth in the country.