Fund released for Public Sector Banks (PSBs)
The central government will release funds for public sector banks (PSBs) in the month of March. The government had initially presented a budget of Rs 20,000 crore for bank recapitalization for this year. But, it was reduced to Rs 15,000 crore in the Revised Estimates to improve the condition of PSBs.
This move will help the lenders i.e. banks to meet the stringent reserve-capital requirements. Also, this will reduce the number of weak banks. This would be possible by improving the financial position of banks through better identification and provisioning of bad debts.
Bank recapitalization means providing more capital to state-owned banks. This will enable them to meet the capital adequacy norms.
The government has provided capital of more than Rs 3.10 trillion to these banks in the last five years starting from FY 2017.
The government makes possible new capital investment in banks by buying new shares or issuing bonds.
Why is there a need for recapitalization of banks?
- To deal with rising Non-Performing Assets (NPA)
- To ensure credit growth in the economy.
- To maintain a certain amount of reserve capital as per Basel norms.
Concerns related to Recapitalization:
- Recapitalization of public sector banks is difficult due to the compulsion to adhere to stringent budgetary deficit norms.
- Recapitalization will not help banks recover bad loans that have reached dangerous levels.
What is Basel Criterion?
- Basel-III is a comprehensive set of corrective measures developed by the Basel Committee on Banking Supervision. It aims to strengthen regulation, supervision and risk management of the banking sector.
- It is based on Basel 1 and Basel 2 criteria.
- Basel-3 norms seek to improve the ability of the banking system to deal with financial stress, improve risk management and promote transparency.
Source: The Hindu
