In a relief to public sector banks (PSBs), which are weighed down by rising bad loans, the government in its interim Budget 2014-15 proposed to infuse Rs 11,200 crore capital in the next financial year.
The government had infused Rs 14,000 crore in various PSBs during the current financial year. Of this, the State Bank of India got Rs 2,000 crore, while Indian Overseas Bank received Rs 1,200 crore.
“In 2104-15, I propose to provide Rs 11,200 crore for capital infusion in public sector banks. They have opened 5,207 branches so far, against the target of 8,023 branches and are near the goal of installing an ATM at every branch,” said P Chidambaram, Minister of Finance during the interim Budget speech in Parliament on Monday.
“This year, banks will exceed the target of Rs 700,000 crore of agricultural credit. I am therefore encouraged to set a target of Rs 800,000 crore for 2014-15,” Chidambaram said.
“There is a interest subvention of 2 per cent and an incentive of 3 per cent for prompt payment, thus reducing the effective rate of interest on farm loans to 4 per cent. I propose to continue the scheme in 2014-15,” he added.
According to NPAsource.com, the non-performing assets (NPA) of PSBS, are likely to cross Rs 1.5 lakh crore by the end of the fiscal.
"Bankers have assured me that as the economy turns they will be able to contain the NPAs, recover more loans and build healthier balance sheets,” Chidambaram said.
NPAs, or bad loans, of public sector banks rose 28.5 per cent to Rs 2.36 lakh crore in September last year from Rs 1.83 lakh crore in March 2013.
Total NPAs had gone up to Rs 1.37 lakh crore in March 2012 from Rs 94,121 crore in March 2011. The amount of NPAs in September 2013 has more than doubled since March 2011.
“The provision for Rs 11,200 crore for recapitalisation of PSBs will provide the risk capital given the current level of stress as well as provide good buffer for growth capital for the industry as a whole,” said Monish Shah, Senior Director, Deloitte India.