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Govt’s $9 bn capital infusion plan for PSBs credit positive

News:

The government is planning to infuse about Rs 57,000 crore in public sector banks in two years.

  • This is a significant change in the government’s approach and will be beneficial for credit profile of state-run banks.
  • Union finance secretary Rajiv Mehrishi said, ” What we are aiming at is an infusion of about $3 billion in the current year and perhaps twice as much in the next year”.
  • The central bank had earlier flagged concerns over inadequate capital infusion. The amount budgeted for investment in state run banks is not enough. But now the government has earmarked Rs 7,940 crore in the Budget for recapitalisation of PSU banks for the current fiscal (2015-16).
  • D R Dogra, managing director, CARE Ratings said that when the goverment is looking at over 9% growth for the Indian economy, it has to provide enough capital to meet Basel III norms and lending.
  • State-owned banks, which have 70% share in lending, are facing bottomline pressures due to sharp rise in non performing loans. This leads to reversal of part of interest income which was booked before accounts became NPA and higher provisions.

Source: Business Standard

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