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The potential savings come as the government gauges the impact of a spurt in the global price of crude oil on its budget calculations for this fiscal year and the next.

The government may not need any other government lender than Punjab & Sind Bank to capitalize on this fiscally, and will likely save 10,400 crore of the 15,000 crore earmarked for this purpose in the revised estimate (RE) for FY22, a top told a source to FE. This could be the government’s lowest capital injection into banks in 12 years.

Last month, Punjab & Sind Bank obtained the approval of its board of directors to raise equity capital worth 4,600 crore by issuing preference shares to the government, allowing it to strengthen its capital adequacy. The government has not budgeted an amount for recapitalization for the next fiscal year. ‚ÄúPublic sector banks (PSBs) posted gains in FY21 despite the pandemic. In addition, many of them have raised significant capital from the market over the past two years,” the source said, explaining why they may not need further government support for this fiscal.

As all major PSBs and most others are well capitalized, the lack of official support will not affect their ability to boost lending and boost economic growth, a senior banker said. Some analysts expected further capitalization from the Central Bank of India, the only state-run bank still under the Reserve Bank’s prompt corrective action framework for stressed lenders. But as finances improve (the bank’s net profit was 279 crore in the December quarter and capital adequacy rose to a staggering 15.87%), it may not need more government capital this fiscal year. In fact, it will likely leave the PCA soon.

The potential savings come as the government gauges the impact of a spurt in the global price of crude oil on its budget calculations for this fiscal year and the next. It assumes that the fertilizer subsidy bill is likely to exceed the revised estimate for this fiscal year by more than 10,000 crore and also skyrocket in FY23. Likewise, fuel taxes are expected to be cut soon to soften the blow to consumers, which will also weigh on the Centre’s revenues. While infusion through bonds, as has been the practice in recent years, does not immediately drive up the government budget deficit, it does contribute to the total national debt. As such, government debt has remained high at around 90% of GDP in the wake of the pandemic. State-owned banks rounded the corner, with gains of 31,820 crore in FY21, the highest in five years.

Their improved financial results enabled them to raise a record amount of 58,697 crore from past fiscal markets, including equity of 10,543 crore. This was well above the 29,573 crore they raised in FY20. In the first eight months of this fiscal year, PSBs have raised a whopping 32,567 crore.

The asset quality of PSBs has also steadily improved. Net bad loans fell to 2.8% as of September 2021, from 7.97% in March 2018. Similarly, their capital adequacy (CRAR) was around 14% as of March 2021, against the requirement of 10.875%.

Pressure on the capitalization of state banks has eased with improving internal transfers, new capital injections and decreasing asset quality risks, even though their average common equity tier-1 ratio was about 525 basis points lower than private banks’ in the first three quarters of this fiscal, Fitch Ratings said last week.

This post Government cuts bank recap spending by 70% for FY22

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