PSBs’ financial health should be assessed by their ability to raise resources from markets: RBI

The financial health of state-owned banks should be assessed by their ability to raise resources from markets rather than depending on capital infusion from the government, according to a report by the RBI. In the Budget 2019-20, the government made a provision of Rs 70,000 crore for recapitalisation of public sector banks (PSBs) and has so far infused Rs 60,314 crore.

In 2017-18, the government had infused a capital of Rs 90,000 and another Rs 1,06,000 crore in 2018-19 into the PSBs, bolstering their capital position. “Going forward, the financial health of PSBs should increasingly be assessed by their ability to access capital markets rather than looking at the government as a recapitaliser of the first and last resort,” the RBI said in its report on ‘Trends and Progress of Banking 2018-19′.

The report said the government has been infusing capital in some PSBs, which has been just enough to meet the regulatory minimum including capital conservation buffer (CCB).

The deferment of the implementation of the last tranche of the CCB till March 31, 2020, has offered some breathing space to these banks, it said. The lenders’ capacity to sustain credit growth in consonance with the financing requirements of the economy will, however, warrant that capital is maintained well above the regulatory minimum, providing these banks confidence to assume risk and to lend, the report said.

“In this sense, recapitalisation would be a continuous process,” it said. The report said raising resources through public issues or private placements has been constrained, partly due to volatile market conditions, the report said.