The Modi government has infused Rs 60,314 crore capital into public sector banks in the current financial year to boost credit availability in the banking system, minister of state for finance and corporate affairs Anurag Thakur informed the Rajya Sabha in a written reply. The government had made a provision of Rs 70,000 crore in the Union Budget for the year 2019-20. India’s banks are facing a crisis of sorts because of non-performing assets (NPAs) to the tune of Rs 9.49 lakh crore at the end of the year 2019-20. PSU banks account for almost 60% of the banking industry. There has been an improvement in the NPA situation in the current financial year. The PSU banks together posted a net profit of for the quarter ended June compared with a net loss of more than Rs 13,000 crore in the same quarter of the previous year.
The recapitalisation is aimed at boosting credit growth to businesses and helping weak public sector banks to meet capital adequacy norms. The Reserve Bank of India had put several PSU banks under prompt corrective action framework.
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In 2014, a committee set up by the Reserve Bank had recommended privatisation of state-owned banks. The government had sold part of its stake in IDBI Bank to Life Insurance Corp of India to bring its shareholding below 51%.
The government had announced the merger of 10 PSU banks into four large lenders. Finance Minister Nirmala Sitharaman had announced four set of amalgamations:
Merger of Punjab National Bank, Oriental Bank of Commerce and United Bank of India to create India’s second largest bank after State Bank of India with 11,437 branches and Rs 17.95 lakh crore business.
Merger of Canara Bank and Syndicate Bank to create the fourth largest PSU bank with 10,324 branches and Rs 15.20 lakh crore business.
Amalgamation of Union Bank of India with Corporation Bank and Andhra Bank to create the fifth largest PSU bank with 9,609 branches and Rs 14.59 lakh crore business.
Merger of Indian Bank with Allahabad Bank to create the seventh largest public sector bank with Rs 8.08 lakh crore business.
The government had decided to keep some PSU banks with strong regional focus as independent entities. These are Indian Overseas Bank, Uco Bank, Bank of Maharashtra and Punjab and Sind Bank. Central Bank of India and Bank of India will also remain independent.’
The government had created the country’s third largest lender by merging Dena Bank and Vijaya Bank into Bank of Baroda. When the mergers are complete India will still have 12 public sector banks.