Union Budget 2019: FM announces Rs 70,000 crore PSU bank recapitalisation

Nirmala Sitharaman presenting Budget 2019 said NPAs of commercial banks have reduced by over 1 lakh crore over the last year, record recovery of over 4 lakh crore due to IBC and other measures has been effected over the last four years.

New Delhi: Announcing government's big banking thrust, Finance Minister Nirmala Sitharaman proposed to provide Rs 70,000 crore capital to boost credit to Public Sector Banks in Union  Budget 2019.

Presenting her maiden Budget, Sitharaman said, “Having addressed legacy issues, Public Sector Banks are now proposed to be further provided 70,000 crore capital to boost credit for a strong impetus to the economy. To further improve ease of living, they will leverage technology, offering online personal loans and doorstep banking, and enabling customers of one Public Sector Bank to access services across all Public Sector Banks,”.

She also added that financial gains from cleaning of the banking system are now amply visible.

“NPAs of commercial banks have reduced by over 1 lakh crore over the last year, record recovery of over 4 lakh crore due to IBC and other measures has been effected over the last four years, provision coverage ratio is now at its highest in seven years, and domestic credit growth has risen to 13.8%,” Sitharaman said.

Government has smoothly carried out consolidation, reducing the number of Public Sector Banks by eight. At the same time, as many as six Public Sector Banks have been enabled to come out of Prompt Corrective Action framework.  In addition, Government will initiate steps to empower accountholders to remedy the current situation in which they do not have control over deposit of cash by others in their accounts. Reforms will also be undertaken to strengthen governance in
Public Sector Banks, the Finance Minister added.

The Finance Minister informed that for purchase of high-rated pooled assets of financially sound Non-Banking Financial Companies (NBFCs), amounting to a total of Rs 1 lakh crore during the current financial year, government will provide one time six months' partial credit guarantee to Public Sector Banks for first loss of up to 10%.

She said that NBFCs which do public placement of debt have to maintain a Debenture Redemption Reserve (DRR) and in addition, a special reserve as required by RBI, has also to be maintained.  

To allow NBFCs to raise funds in public issues, the requirement of creating a DRR, which is currently applicable for only public issues as private placements are exempt, will be done away with.

To bring more participants, especially NBFCs, not registered as NBFCs-Factor, on the TReDS platform, amendment in the Factoring Regulation Act, 2011 is necessary and steps will be taken to allow all NBFCs to directly participate on the TReDS platform, the Finance Minister added.