Stake dilution in PSBs to occur after health improves

Tokyo, May 8: The government will dilute its stake in state-run banks to 52 per cent once the health of the lenders improve and the money will be used to inject capital in them, finance minister Arun Jaitley said on Monday

He hoped for a resolution to the burgeoning bad loan problem following the government empowering the RBI to order lenders initiate insolvency proceedings against defaulters and create committees to advise banks on recovering non-performing loans.

“We already have a programme under which we have been supporting recapitalisation of banks. Where more funds are required from the government, we will be quite willing to look at that.

“But once the health of the banks themselves improve, we have also announced that the government will be willing to bring down its own equity in the banks to 52 per cent and that can be used for banks’ recapitalisation,” he said at a CII-Kotak investor roundtable here.

This fiscal, the government has budgeted `10,000 crore of capital infusion in public sector banks.

The amount is lower than `25,000 crore set aside in the previous budget but will be insufficient to help state-run banks raise about `80,000 crore of equity capital that they will require over the next two years to comply with the Basel III norms and support credit growth.

Mr Jaitley said the NPA problem is limited to “a certain set of accounts and these numerically are not very large in number but the quantums are high and therefore, they impact the balance sheet of banks”.