The government had announced an upfront capital infusion of the budgeted Rs.70,000 crore into the public sector banks (PSBs) in the current fiscal year. It is said that the infusion can enable PSBs to lend an additional Rs.5 lakh crore. Besides, the government is planning an additional infusion to strengthen the capital base and boost the step up lending.
As per the announcement, the Finance Ministry has already allocated Rs.59,807 crore for infusion in the current fiscal. The rest of the promised infusion will be allocated soon. Further, the Department of Financial Services is likely to place a demand for additional capital soon. The infusion plan aims to stimulate sedated consumption and, in turn, economic growth by ensuring a greater credit flow at reasonable rates.
About 10 PSBs are to be merged to form four larger entities; the capital infusion is going to comfort these entities. As a part of ensuring greater credit flow, the government has directed PSBs to conduct loan outreach programmes in 400 districts ahead of Diwali.
Though the government has not specified the exact amount that will be allocated as an additional infusion, it looks like the government is fine with any amount as long as there is a pressing requirement.
Infusing this large sum will be done through recap bonds; therefore, the infusion will not affect the government’s financial calculations. Considering the government’s math becomes extremely important when the estimated gross revenue is hit by Rs.1.45 crore in the financial year 2019-20 due to the sharp decline in corporate tax rates. You must know that the recap bonds directly add to the country’s debt and the interest applicable is paid from the Budget.
It is important to recall that roughly a sum of Rs.2.5 lakh crore was provided as a capital by the Modi government in its first term.
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