More funds to be provided to banks to relieve them from bad loans

New Delhi: The rise in number of bad loans is causing a nuisance for the banking sector in India. The maximum number of bad loans are from Government banks. The government is trying to provide funds to these banks and free them from the clutches of debts. However Raghuram Rajan, Ex-Governor of Reserve Bank of India (RBI) stated that more capital is required for the banks in public sector.

Raghuram-RajanThe public sector banks bad loans have been constantly increasing in last few years. RBI and Ministry of Finance are looking to control the ‘NPA’. However it does not seem to have helped much. In addition to this, banks have been asked to fulfil the ‘Basel – III’ criteria by 2019. Similarly, improvements in International Financial Reporting Standard (IFRS) are sought.

It is feared that in the last few months the issue of bad loans for Indian banks is getting worse. Rajan said that in such a situation, extra capital is required to relieve the banks.

Two months back, Indian Government had infused Rs. 22,915 Cr into public sector banks to relieve their burden of bad loans. This fund has been provided to 13 banks. The State Bank Bank of India will be been given a sum of Rs. 7,575 Cr. Indian Overseas bank and Punjab National bank will receive Rs 3,101 Cr and Rs 2,816 Cr respectively. Dena bank has been provided a fund of Rs 44 Cr. However considering the situation banks are going through currently, Rajan is of the opinion that additional capital would be needed. 

In the meantime, the Ministry of Finance has made a provision to supply a capital of Rs. 70,000 Cr to the government banks in the next four years. During the 2016-17 budget, Finance Minister Arun Jaitley had proposed an allotment of Rs. 25,000 Cr to state run banks. Additionally Rs. 10,000 Cr will be infused in state run banks in 2017-18 and 2018-19 as well. However it is said that to fulfil the ‘Basel – III’ criteria, these banks will require an additional amount of Rs. 1,10 lakh crore.

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