Public sector banks (PSBs) will need fresh core capital of Rs 1.2 lakh crore in the next five months and the government will have to take a bulk of the tab due to the weak market valuations of these NPA-saddled banks, a Crisil report has said.
This is more than double the government’s budgeted Rs 53,000 crore of capital infusion for the current financial year.
If the government decides to meet this need, this will put further pressure on the fiscal maths and make it tough to achieve the 3.3 per cent fiscal deficit target set for the current fiscal year. Already, the government has used up over 95 per cent of the deficit target or the market borrowings as of October end.
The report comes even as the government is asking the Reserve Bank to lower the minimum capital requirements by getting it on a par with global practices — something the central bank is uncomfortable to meet.
The Rs 1.2-lakh-crore capital requirement to meet the Basel-III norms is Rs 21,000 crore more than the Rs 2.11 lakh crore estimate announced by government in October 2017, the report said.
Till now, only Rs 1.12 lakh crore have been infused into these lenders since October 2017, it said, adding only Rs 12,000 crore has come from the markets.
Most of the required capital has to be infused into the 11 lenders which are under the prompt corrective action (PCA) framework of the RBI, wherein depletion in capital and return on assets, combined with a surge in non-performing assets, has resulted in severe restrictions on normal operations, it said.