Last month, the government had unveiled a staggering Rs 2.11-lakh crore two-year road map to bolster NPA-hit public sector banks, which includes recapitalisation bonds, budgetary support and equity dilution. While announcing the government’s plan of capital infusion in public sector banks (PSBs) last month, Finance Minister Arun Jaitley had said it would be accompanied by reforms to enable the lenders to play a major role in the financial system and give a strong push to the job-creating MSME sector. The banks will also be getting nearly Rs 18,000 crore under the Indradhanush plan. “Everything is linked to the reforms in which each board will consider within a short time as to what kind of business and how they want to go ahead.
The said plan is not easy money which is going to come, that is the main point. It has to be followed with a whole lot of reforms,”Financial Services Secretary Rajiv Kumar said in a statement. This was decided in the first ‘PSB Manthan’. With strong fundamentals of the economy and growth getting back on track in coming months, he said banks are preparing themselves for credit offtake. Under the Indradhanush road map introduced in 2015, the government had announced infusion of Rs 70,000 crore in state- owned banks spread over four years to meet their capital requirements in line with global risk norms, known as Basel- III. As per the plan, PSBs were given Rs 25,000 crore in 2015 -16, and a similar amount.
The banking sector has been under pressure due to a variety of reasons such as: High NPAs and higher provisions being made, sluggish growth in credit offtake with investment being low and challenges of capital for PSBs in particular.
To enhance the growth and credit off take the RBI has been lowering the reference rate in a guarded manner and banks have followed suit, albeit cautiously. However, business has been low and emanated more from the retail segment and less from industry and services. This has gotten reflected in their financial performance. Results of 30 banks in both the sectors (excluding SBI) presented in the table below show that Q2-FY17 has continued to be stressful in terms of growth in net interest income and profits. Gross NPAs are now around Rs 3.66 lakh crore for these banks. The situation is a wait and watch for the days to come.