The Reserve Bank of India (RBI) has sought an additional Rs 26,000 crore from the government to be injected into state-run banks by 2018. The point here is that current capital pledges may be inadequate because stressed assets have swelled. The government may announce an increased amount in the Budget itself. So far in this fiscal, the government has spent Rs 20,000 crore on bank capitalisation and will infuse another Rs 5,000 crore before March. The government has pledged Rs 70,000 crore toward this end until FY19; Rs 25,000 crore of this in the next fiscal year.

Background:-

• RBI has informed the government about the additional capital that will be needed by state-owned banks until 2018 as part of implementing Basel-III standards.
• If a bank’s profitability is insufficient, it may need capital to meet that provision. RBI has been pushing banks to clean up balance sheets and make adequate provision for bad
  loans.
• As per finance ministry data, gross non-performing assets (NPAs) of PSBs increased by 25.19% to Rs 3.14 lakh crore at the end of September 2015 from Rs 2.5 lakh crore at the same time in the previous year.

Additional points to be noted:-

• Banks have been allowed to bring down the government holding in them to 52%.
• The government has also been pressing the banks to divest non-core assets.
• The finance ministry estimates that state-run banks will require Rs 1.8 lakh crore of additional capital in the next four financial years, of which Rs 1.1 lakh crore will have to be raised from the market by the lenders.
• Bankers argue that market conditions are not conducive for public offerings. It will be extremely difficult to get investors when your books are laden with non-performing loans.
• The country’s largest bank, State Bank of India, has extended the period of approval for raising equity capital of about Rs 15,000 crore until March 2017.