The banking regulator has said that public sector banks will urgently need capital infusion due to rising bad loans in their books.
This was stated by the Reserve Bank of India (RBI) in its pre-policy macroeconomic and monetary document released a day before the half-yearly policy is announced. Since the majority stakes in PSU banksss are owned by the government, the onus of infusing capital also falls on them.
The government, in Union Budget of 2011-12, had said that it was committed to increasing the core capital in PSU banks to 8% and maintaining a minimum stake of 58% in them.
In the documents, RBI has pointed out, "The asset quality of the Indian banking sector, the risk exposure and the challenge of public sector bank recapitalisation in the face of fiscal pressures are issues which require attention."
The concern stems from the fact that a number of government-owned banks have showed a sharp rise in bad loans which requires them to set aside higher capital as provisions. This, in turn, reduces profits and core capital.
In fact, State Bank of India has been seeking capital from the centre in the range of Rs 10,000 to Rs 20,000 crore for over a year now. The bank had made huge provisions for bad loans in the last quarter of fiscal year March 2010-11, which brought down its profits to Rs 21 crore. Also, in this fiscal year, many PSU banks have seen huge slippages or shifting of an account from standard to sub-standard catagory.
In the first quarter of June 2011, State Bank of India reported slippages of Rs 6,180 crore and Bank of India is 1684 crore. In the second quarter, Union Bank of India has reported slippages of Rs 700 crore in the first quarter and of 1,800 crore in the second quarter of this fiscal year.
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