Finance Minister Nirmala Sitharaman, in the Budget 2019 speech, announced that the public sector banks (PSBs) will be provided with a capital infusion of Rs 70,000 crore, giving a much-needed boost to the stressed banks who are under pressure owing to the rising NPAs'.
The bank recapitalisation of Rs 70,000 crore is aimed at bolstering the capital base of the state-owned banks and making sure that the commercial or industrial enterprises do not suffer. Earlier in 2018-19, Finance Minister Arun Jaitley had given a shot of Rs 1.06 lakh crore as recap bonds.
"Measures such as Rs 70000 cores capitalisation for public sector banks, allowing NBFCs to raise foreign debt, doing away with Debenture Redemption Reserve requirement for public issue of debentures and partial guarantee from government for purchase of NBFC bonds, could help in improving the liquidity situation in the economy," said Nitesh Mehta, Partner/ Transaction Tax, Tax & Regulatory Services.
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The Rs 70,000 crore recap amount is a small part of Rs 2.11 lakh crore that government plans to give to the banking sector in the next few years.
Sitharaman said that the financial gains from cleaning of the banking system are clearly visible and that NPAs have reduced by over Rs 1 lakh crore last year. Smooth consolidation of banks was carried out and six public sector banks were brought out of prompt corrective action (PCA) framework.
Sitharaman added that the financially sound NBFCs will continue to get funds from banks and mutual funds. The requirement of Debenture Reservation Reserve will be done away with for NBFCs.
The Finance Minister also said the RBI will get regulation authority of housing finance sector.
"Fresh capitalization of Rs 70,000 Crores to the Public sector Banks is highly positive for the Banking ecosystem and came as more than a pleasant surprise. This will go a long way in terms of getting lending back on track stimulating growth in core sectors like Infrastructure", said MD & CEO, Centrum Infrastructure Advisory Ltd.
Edited By: Udit Verma