Depending on the improvements in performance and efficiency, the finance ministry will infuse Rs 5,000 crore in public sector banks (PSBs) to boost their capital. In total eight lenders are expected to benefit from this last round of capitallisation in the ongoing fiscal year, including Vijaya Bank, Indian Bank and Syndicate Bank. Finance Ministry stated that “We are committed to support PSBs but the onus is on them to improve their profitability and return on assets (RoA), which will be the key factors before allocating any further amount.”
The other parameters on which banks will be assessed include bad loans and growth in low-cost deposits. The finance ministry has also identified six banks - Bank of India, IDBI, Indian Overseas Bank, Bank of Maharashtra, UCO Bank, and United Bank of India which require special focus to arrest bad loans.
Parliament's nod was sought for additional spending of Rs 56,256 crore in the second supplementary demand for grants, largely to cover excess expenditure on defence pensions and the Swachh Bharat Abhiyan.
The government allocated Rs 25,000 crore for bank capitalization in FY16, from the initial budgetary allocation of Rs 7,940 crore. Of this, Rs 20,000 crore has been infused and Rs 5,000 crore was to be provided in the second supplementary this year. However, it did not seek any funds toward bank capitalisation in the second batch of supplementary demands for FY16. State Bank of India, the country's biggest lender, was the biggest beneficiary in the first round of capitalisation for this fiscal with an allocation of Rs 5,531 crore.
In August, the government announced Rs 70,000 crore capitalization plan for state run banks over four years under its seven pronged Indradhanush revamp initiative. As per finance ministry data, the gross non-performing assets (NPAs) of Bank of India have almost doubled to Rs 29,894 crore since September 2014.