Indian Union Budget 2021-22: The announcement of a Rs 20,000-crore recapitalisation round and the establishment of a new improvement finance institution (DFI) could collectively aid ease the capital constraints faced by public sector banks (PSBs), business executives mentioned. However, issues stay about the adequacy of the outlay for recapitalisation, in particular in the occasion of a fresh asset good quality assessment (AQR) exercising.
Finance minister Nirmala Sitharaman mentioned the intent behind setting up a new DFI is not just to spur infrastructure spending, but also to encourage the creation of competing institutions from the private sector. “The needs of this country are such that just one development finance institution set up by the government cannot adequately cater to its requirements. Therefore, we see a future where a DFI which is partly funded by the government and raises capital from the market is also competing with private-sector DFIs,” she mentioned.
The DFI will have an initial outlay of Rs 20,000 crore from the government with more getting invested later, and will sooner or later be utilized for raising Rs 5 lakh crore more than the next 3 to 5 years. The launch of a DFI will aid PSBs, which have traditionally been the main financiers for infrastructure projects, diversify their concentrate regions, mentioned Anil Patwardhan, senior director, Brickwork Ratings. “This will enable the PSBs to reduce their exposure to infrastructure projects and enhance their credit to other industries.”
Bankers took a positive view of the announcements. SS Mallikarjuna Rao, MD & CEO, Punjab National Bank, mentioned, “Further recapitalisation of Rs 20,000 crore for PSBs in FY22 is a welcome step. Setting up of a professionally managed development finance institution will catalyse infrastructure funding.”
: Check Union Budget 2021 Live Updates right here:
In addition, pending disbursements from the earlier round of recap must aid also, mentioned Prakash Agarwal, head – economic institutions, India Ratings and Research. “From the announcements made last year, Rs 14,000 crore is yet to be disbursed. These put together should provide reasonable support for PSBs to grow their balance sheet,” he added.
Some bank unions, although, took the view that the recapitalisation strategy barely accounts for losses banks may perhaps endure soon after a probably AQR exercising. Devidas Tuljapurkar, common secretary, Maharashtra State Bank Employees Federation, mentioned, “The government has supplied Rs 20,000 crore for recapitalisation of PSBs, which is inadequate if they have to develop in company. In the eventuality of an asset good quality inspection, after once again banks will have to face big non-performing assets and may perhaps after once again be dragged into losses, with their capital finding eroded.