Survey: Govt to infuse Rs 12,000 cr in PSU banks this fiscal

The government has earmarked Rs 12,000 crore for infusion in the public sector banks (PSBs) in the current fiscal, which is double the amount provided in the Budget 2011-12.

"A sum of Rs 12,000 crore has been provided in the Revised Estimates 2011-12...for capital infusion in PSBs to enable them to maintain a minimum Tier I CRAR at 8 percent as on March 31, 2012 and also to increase shareholding of the government of India in the PSBs to 58 percent," the Economic Survey 2011-12 said Thursday.

For the year 2012-13 also, it said, the Government is committed to keep all the PSBs adequately capitalised so that the growth momentum of economy is sustained.

"As capital is a key measure of bank's capacity for generating loan assets and is essential for balance sheet expansion, the government of India has regularly been investing additional capital in the PSBs to support their growth and keep them financially sound and healthy so as to ensure that the growing credit needs of economy are adequately met," the survey said.

Finance Minister Pranab Mukherjee while presenting 2011-12 Budget last year had said: "I propose to provide a sum of Rs 6,000 crore for the year 2011-12 to enable Public Sector Banks to maintain a minimum Tier I Capital to Risk Weighted Asset Ratio (CRAR) at 8 percent."

He had said the government provided Rs 20,157 crore for infusion in PSBs to maintain Tier I CRAR at 8 percent and increase the government equity in some banks to 58 percent in 2010-11.

The survey also said the government has appointed a high level committee headed by the Finance Secretary to assess the need for capitalisation of various PSBs for the next 10 years, keeping in view various challenges PSBs have to face due to the impending implementation of Basel III norms.

The Committee has submitted its report to the government which is under consideration, the survey said.

The government is signing memorandum of understandings (MoUs) with the PSBs whereby capital infusion will be linked to achieving the targets by PSBs on various key parameters on productivity, including return on assets, net profit per employee and cost to income ratio, it said.

MoUs spanning over a period of four years, 2011-12 to 2014-15, have since been finalised with all the PSBs, excluding SBI Associate Banks. SBI will be entering into MoU with its associate banks on similar parameters, it said.

The government has put in place a mechanism of Statement of Intent on Annual Goals (SOI) to monitor the performance of PSBs on various performance parameters, the Survey said.

In order to have greater focus on efficiency parameters and for more realistic view of the quality of assets of PSBs, SOI parameters have been revised during 2011-12, it added.

However, the survey noted that Indian banks remain robust, notwithstanding a decline in capital to risk-weighted assets ratio and a rise in non-performing asset levels in the recent past.

Capital adequacy levels remain above the regulatory requirements, it said, adding the financial market infrastructure continues to function without any major disruption.

With further globalisation, consolidation, deregulation, and diversification of the financial system, the banking business may become more complex and riskier, the survey said.

Issues like risk and liquidity management and enhancing skill, therefore, assume greater significance, it added.