Rising bad loans at Indian banks over the past three years amid an economic slowdown has prevented banks from lending more, despite three interest rate cuts by the central bank this year totalling three-quarters of a percentage point.
This has affected the Government's plan to spur a revival in credit to key sectors such as infrastructure.
“We are working and trying to understand exactly what the capital requirements are going to be in the next 2-3 years for (public sector) banks. And we are there to support them and provide them the capital that they need,” Minister of State for Finance Jayant Sinha said at an event organised by IVCA here.
A high-level panel comprising Sinha and Financial Services Secretary Hasmukh Adhia are assessing the capital requirement. The last meeting of the panel will be held on July 3 in Bengaluru.
Last year, Finance Minister Arun Jaitley had said to be in step with Basel-III norms, there is a requirement to infuse Rs. 2.40 lakh crore as equity in public sector banks by 2018.
For the current fiscal, the Government has allocated Rs. 7,940 crore in the Budget for capital infusion in state-owned banks.
However, the Finance Minister last month promised to provide more than the budgeted amount this fiscal.
“As far as public sector banks are concerned, we put in place a comprehensive package to really strengthen our banks. There are five aspects and dimensions we are trying to do,” Sinha said.
First and foremost, Sinha said, the Government is working on governance changes relating to role of MDs, the board and the like.
He said, “We have been working on strengthening management of banks by making the selection process transparent. We have also been working on improving the operating performance of these banks as well as in terms of technology and risk management.”
The Finance Ministry will soon wrap up the exercise.
The upcoming meeting in Bengaluru will take stock for banks such as Andhra Bank, Indian Overseas Bank, Corporation Bank, Canara Bank, Syndicate Bank and Vijaya Bank.
The Ministry is already done with the assessment for other public sector banks.
Source : Thehindubusinessline