PSU banks to Rs. 2.10 trillion capital requirement

Mumbai, Ta. 21 August 2020, Friday

Public sector banks in India, which are already facing a capital crunch, will need an external capital of Rs 1.50 trillion to Rs 2.10 trillion over the next two years to establish their loss-making capacity, according to a Moody's report. The government seems to be the most feasible way to meet the capital crunch. The government had recently provided capital to public sector banks.

The uncertainty surrounding India's economy and the ongoing exercise in clearing the balance sheets of banks is making it difficult for banks to raise capital from the market, the rating agency said in a statement. Can pose a risk to the financial system.

Considering the sharp decline in India's economic growth rate, it will hurt the asset quality of public sector banks which will lead to an increase in its credit costs. Non-performing assets (NPAs) will be higher due to micro, small and medium enterprises (MSMEs).

Even before the spread of the coronavirus, India's economic growth rate was at a three-year low.

Another earlier report said that most of the banks had already received approval to raise capital in the current financial year as per their requirement. In the last financial year, the government had pumped Rs 50,000 crore into public sector banks. The money was sent by banks for the purpose of increasing lending. After the second quarter results, the government will look at the balance sheets of banks and check their capital status, the sources added.