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Centre to pump Rs. 70,000 cr. into PSU banks

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Centre to pump Rs. 70,000 cr. into PSU banks

... The Hindu:

The Modi government on Friday announced a big-bucks boost to investments in the economy. Union Finance Minister Arun Jaitley told Parliament that the Centre will over the next four years infuse Rs.70,000 crore out of budgetary allocations into state-owned banks.

Later, Minister of State for Finance Jayant Sinha told reporters that the proposed National Investment and Infrastructure Fund (NIIF) that the Union Cabinet had approved on Wednesday will make equity investments of Rs. 20,000 crore every year in commercially viable long gestation projects which will help to kick-start the economy.

The Centre will own 49 per cent of this new Mumbai-based fund, which won’t be answerable to Parliament nor audited by the CAG. It will be run on a commercialbasis by managers, who will be paid globally competitive salaries.

Rs. 25,000 crore for banks this year itself

Of the Rs. 70,000 crore planned to be infused out of budgetary allocations into state-owned banks over the next four years, as much as Rs. 25,000 crore will be provided to public sector banks this year itself, Union Finance Minister Arun Jaitley told Parliament on Friday.

Seeking approval of Parliament for the Centre’s supplementary demand for grants for the current financial year, 2015-16, Mr. Jaitley said: “This will give a boost for investment and growth in India. It is a long overdue step. The government in the past has talked about it but this time the government is actually implementing it.”

This demand to authorise gross additional expenditure of Rs. 40,821.68 crore, includes Rs.12,000 crore to be given to banks.

Mr. Jaitley had earlier allocated Rs. 7,940 crore in the Union Budget 2015-16. The remaining Rs.5,000 crore would be provided in the second supplementary later this year, according to an official release.

Public sector banks will need to raise Rs. 1,10,000 crore more from the market by 2018-2019, in addition to the equity infusion from the Centre, for them to remain adequately capitalised to support economic growth, the Finance Ministry has estimated.

Projects becoming strained on account of delays in approvals and land acquisition as well as due to the global and domestic economic slowdown have in turn lowered the profitability of Public Sector Banks and also added to their non-performing assets (NPA), the release said.

As of now, these banks are adequately capitalised and meeting all the Basel III and Reserve Bank norms. The Centre, however, wants to adequately capitalise them and keep a safe buffer over and above the minimum norms.

It is expected that the banks will be able to raise the additional funds from the market as their valuations will improve significantly on the back of governance reforms; NPA management and risk controls; improvements in operations; and, of course, the capital allocation from the government.

About 40 per cent of the total Rs. 25,000 crore to be allotted this year will go to those banks which require support.

Another 40 per cent will be allocated to the top six big banks — State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank, and IDBI Bank — in order to strengthen them to play a vital role in the economy. The remaining portion of 20 per cent will be allocated to the banks based on their performance during April to December in the current year judged on the basis of certain performance. This will incentivise them to improve their performance, the release said.

The four-year plan for infusion from the Centre’s budgetary resources envisages another Rs. 25,000 crore next year, Rs. 10,000 crore each in the years 2017-18 and 2018-19.

Mr. Jaitley also met with Reserve Bank Governor Raghuram Rajan on Friday. Minutes before the meeting, Mr. Jaitley told reporters that the low pace of credit growth was continuing to be a drag on the economy

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