InvestorQ : Why is the government not planning capital infusion into PSU banks in the 2020 budget and how could that impact PSU banks?
Arya Nanda made post

Why is the government not planning capital infusion into PSU banks in the 2020 budget and how could that impact PSU banks?

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Deepa Salunkhe answered.
12 months ago
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After a series of capital infusions into PSU banks in the last few years, the government is unlikely to announce capital infusion in the 2020 Budget for the public sector banks (PSBs). Instead, the government will encourage them to expedite recovery of bad loans, monetize assets and subsidiaries and raise funds from the market. Ideally, banks will be expected to divesting or selling their non-core business as part of fund raising exercise during 2020-21. Banks have robust recovery pipeline from the resolution of NCLT and non-NCLT cases during this year. The provision coverage ratio of PSU banks is at a 7-year high of 76.6% provisions up to 100% in many cases.

Let us take the case of SBI. The bank has already initiated diluting of its stake in subsidiaries like SBI Cards and in other investments like UTI Mutual Fund as well as selling 50 lakh shares representing 1.01% stake in the National Stock Exchange (NSE). Similar exercise is being undertaken by other state-owned lenders as well in an effort to raise capital. It must be remembered that the government has front loaded Rs.68,855 crore, out of Rs.70,000 crore earmarked for capital infusion for the current fiscal. Hence there is not much headroom left and the government wants the PSU banks now to go alone; at least the strong ones. In a way this could be a short term concern but should be long term positive for the PSU banking sector.

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