Govt Pumps Rs.22,915 Crore into PSU Banks

The government has provided Rs.22,915 crore of capital to 13 state-run banks, infusing funds early in the fiscal year as it looks to boost lending and shore up economic growth.
The biggest beneficiary of the capital allocation is State Bank of India, the country's largest lender, which gets nearly a third. Indian Overseas Bank comes next at Rs.3,101 crore.
The move will provide liquidity support for lending operations and also enable banks to raise funds from the market, the finance ministry said in a statement on Tuesday.
Lenders hailed the move but were cautious about whether it will help increase credit offtake or bring down interest rates. Credit growth remained muted at 8% in May compared with 8.5% in the year earlier.
Loan growth has failed to perk up as private investment remains a laggard in India's economic revival story, which is held aloft largely by consumption and government spending. And, although RBI has lowered interest rates by 150 bps since January 2015 to 6.5%, transmission of policy appears to have stalled.Banks have defended themselves by saying they're constrained by low savings rates and lack of liquidity .
Investors didn't react much to the capital infusion -National Stock Exchange's PSU bank index rose a marginal 0.26%. However, Canara Bank, which received Rs.997 crore, rose 6%.` The Centre will release 75% of the amount immediately. “The remaining amount, to be released later, is linked to performance, with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations,“ the finance ministry said. SBI Chairman Arundhati Bhattacharya welcomed the infusion and said it was timely.
Punjab National Bank, Central Bank of India and Bank of India are among the banks that will benefit from the exercise.
The government has budgeted Rs.25,000 crore for capital infusion in state-run banks this fiscal. But experts are of the view that given the banks' heavy bad loan burden, the government will need to infuse more capital if it wants state-run lenders to be competitive.
On Monday , Fitch said it is not clear if the Rs.70,000 crore capital promised by government by FY 19 will be sufficient.
“Fitch estimates the banking system needs around $90 billion (Rs.6 lakh crore, or 4% of GDP in FY17) of capital, while many public sector banks are likely to find it difficult to access new capital from non-government sources,“ it said in a statement. Gross NPAs of public sector banks at the end of FY16 was 9.32%.
According to RBI's June 28 Financial Stability Report, gross non-performing assets (NPAs) in the banking sector grew to a 12-year high of 7.6% of advances at the end of March. As per RBI's projection, the gross NPA ratio may rise further to 8.5% by March 2017.

Banks have been reporting poor earnings as they have been forced to recognise bad loans as part of RBI's asset quality review. A recent report by India Ratings and Research (Ind-Ra) has also pointed out that limited availability of growth capital for public sector banks could pull down their loan growth trajectories to a compound annual growth rate (CAGR) of 9% over FY16-FY19.The growth will be even slower at 8.1% CAGR for mid-sized state-run banks, the report notes.