Govt unlikely to announce capital infusion for PSU banks in Union Budget 2022

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Photo source: PTI

In the Union Budget 2023, the government is unlikely to announce capital inflows for PSU banks

The government is unlikely to announce funding for public sector banks (PSBs) in the forthcoming budget, as their financial health has improved due to bad debt reduction, sources said. To increase their resources, banks will be encouraged to raise funds from the market and sell their non-core assets, they added.

In the current financial year, the government has allocated Rs 20,000 crore for recapitalization of PSB. Finance Minister Nirmala Sitharaman is expected to present the fourth budget of the Modi 2.0 government on February 1.

PSB’s net profit rose to Rs 14,012 crore in the first quarter from Rs 17,132 crore in the second quarter ended September 2021.

The combined profit of the first half of the current financial year is close to the total profit earned in the previous financial year. In the last financial year, PSBs raised a capital of Rs 58,697 crore, the highest amount ever collected in a single fiscal year.

The capital adequacy ratio (CAR) of PSB has risen to 14.3 percent by the end of June, 2021, with the provision coverage ratio of public sector banks reaching an 8-year high of 84 percent.

In some non-performing assets, banks have provided up to 100 percent, sources said, and recovery from those accounts will be part of the direct bottom line.

Banks have been asked to focus on the recovery process as it will further enhance their financial health. Meanwhile, banks are also working to expand their balance sheets under the Credit Outreach Program starting October 16, 2021.

Various reforms adopted by the government including recognition, resolution and recapitalization have resulted in progressive decline in non-performing assets (NPAs) and subsequent increase in profits.

PSB’s NPA decreased from Rs 7,39,541 crore in March 31, 2019 to Rs 6,78,317 crore as on March 31, 2020 and further to Rs 6,16,616 crore (provisional data) as on March 31, 2021. At the same time, the provision coverage ratio (PCR) has gradually increased to a maximum of 74 percent.

As a result, PSVs recorded a total profit of Rs 31,816 crore, a five-year high, despite a 7.3 per cent contraction in the economy in 2020-21 due to the Kovid-19 epidemic.

The primary reason PSB posted a turnover of Rs 57,832-crore in the last financial year was a combined profit of Rs 31,816 crore from a loss of Rs 26,015 crore in 2019-20, ending their inherited bad debt problem.

At the same time, massive steps were taken to control NPAs and increase recovery, which enabled PSBs to recover Rs 5,01,479 crore in the last six financial years.

(With PTI input)

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