Government infuses Rs 6,990 crore in only nine of the 27 PSBs this fiscal against Rs 14,000 crore in previous year

NEW DELHI: Public sector banks are likely to make individual presentations to the finance ministry on their capital requirements and business plans. The move comes days after some of these banks raised concerns over their funding requirements.

The government has infused Rs 6,990 crore in only nine of the 27 state-run banks this fiscal, against Rs 14,000 crore in 20 banks in the previous year. For 2015-16, the government has set aside Rs 7,940 crore for public sector banks (PSB).

“There was a suggestion made in this regard. As the majority stake holder, the government would like to know about the business plans of each PSB and accordingly make provisions for their capital needs,” said a government official aware of the deliberations.

The issue was discussed at the quarterly review meeting of banks and financial institutions earlier this month. “Either Finance Minister Arun Jaitley or his Minister of State Jayant Sinha will take these presentations,” the official added.

In 2014-15, the government allocated capital to banks on the basis of their performance-—return on equity (RoE) and return on assets (RoA)—in a bid to make the best use of the limited capital available. This created problems for some of the struggling banks that did not have adequate capital cushion to extend credit, an issue the banks want to raise with the finance ministry.

Some bankers say there is an urgent need to change the performance criteria as it is tilted in favour of large banks. “In this time of stress, it is the smaller banks which need more support from the government.

Some of them have operations in far-flung areas, which are not economically viable,” said an executive director with a PSB, adding that state-run banks have to manage both commercial and social objectives.

At the end of 2014, gross bad loans at PSBs had risen to Rs 2.60 lakh crore from Rs 80,818 crore in 2013. The government is keen to encourage banks to restructure their business and raise capital from the market.

According to a finance ministry estimate, PSBs can raise about Rs 80,000 crore from the market at the current level of market capitalisation if the government stake in them remains at a minimum 52%.

“If banks find it difficult to raise capital for whatever reason, we will encourage them to look at the possibility of restructuring their business portfolio,” Financial Services Secretary Hasmukh Adhia had told ET earlier.