Government to infuse Rs 20,000 crore in Public Sector Banks 

#GS3 #Economy 

The Union Government sought Parliament's approval for infusing Rs 20,000 crore in public sector banks in the current financial year to meet regulatory requirements.  

  • The proposal is a part of the first batch of Supplementary Demands for Grants for 2020-21 moved by Finance Minister Nirmala Sitharaman in the Lok Sabha earlier today. 
  • The document tabled by the Finance Minister read that the government has asked for the Parliament's authorisation of Rs 20,000 crore for meeting expenditure towards recapitalisation of Public Sector Banks through the issue of Government Securities. 

Key points 

  • The centre has overall sought Parliament's approval for additional spending worth Rs 2.35 lakh crore, which includes a cash outflow of Rs 1.66 lakh crore to meet expenses for combating the COVID-19 pandemic. 
  • The government has also sought subsidy worth Rs 1,232 crore for Small Industries Development Bank of India (SIDBI) on interest subvention of 2 percent on prompt repayment of Shishu Loans extended under Pradhan Mantri Mudra Yojana (PMMY). 
  • The Finance Minister also sought the Parliament's approval for Rs 4,000 crore to meet the additional expenditure towards Grants-in-Aid General to National Credit Guarantee Trustee Company Limited (NCGTC) for the Guarantee Emergency Credit Line (GECL) facility to eligible MSME borrowers. 
  • The central government had refrained from committing any capital infusion for the PSBs in its Budget 2020-21 with the hopes that the lenders would raise funds from the market depending on the requirements. 

Government's capital infusions in PSBs in FY 2019-20 

  • In the fiscal year 2019-20, the government had proposed to make Rs 70,000 crore capital infusion into the Public Sector Banks (PSBs) to boost credit for a strong impetus to the economy. 
  • Hence, in the last fiscal, Punjab National Bank got Rs 16,091 crore, Union Bank of India received Rs 11,768 crore, Canara Bank got Rs 6,571 crore and the Indian Bank got Rs 2,534 crore. 
  • Among other banks, Allahabad Bank received Rs 2,153 crore, United Bank of India got 1,666 crore and Andhra Bank received Rs 200 crore. The three lenders have now been merged with various PSBs. 
  • The Bank of Baroda also got a capital infusion of Rs 7,000 crore, while Indian Overseas Bank and UCO Bank received Rs 4,360 crore and Rs 2,142 crore respectively. 
  • Further, Punjab & Sind Bank had received a capital infusion of Rs 787 crore and the Central Bank of India received Rs 3,353 crore. 
  • The IDBI Bank also received additional capital of Rs 4,557 crore through the supplementary demands for grants. 

Background 

  • In April 2020, the centre had assured the state banks that it is ready to provide capital support as the COVID-19 pandemic may lead to a surge in bad loans as economic growth slows.  
  • The government has already pumped in Rs 3.5 lakh crore in the last five years to rescue its banks. 
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