Seven reasons why public sector banks need Rs 70,000-cr lifeline

Planning to inject $11 billion of capital into debt-laden state banks over the next four years, Finance Minister Arun Jaitley on Friday sought Parliament's approval to boost budget spending by $4 billion in the current fiscal year.

Here are seven reasons why the lenders need the money:

1.      Deteriorating asset quality with stressed asset portfolio of PSU banks crossing 10 per cent of the loan book: Higher stressed assets  means higher provisions for these assets in the profit & loss  account , which eats  away capital.
2.      Pressure  on profitability as the  corporate loan book not growing because of lower credit offtake Lower profitability reduces the internal generation of capital. If the profits are lower , there is lower accretion to reserves & surplus , which is  actually contributes to capital.
3.      Implementation of Basel-III , which requires higher capital provisioning The new Basel-III  requires higher  capital buffers to withstand  any  shock  in a post 2008 like situation. The banks' will require higher capital.   
4.      Higher capital required for  any future growth. The retail banking is clearly showing some buoyancy. The corporate growth will also  come back with the government's focus on reforms , higher FDI  limits and  and  also Make in India initiatives. These measures  will improve industrial activity  and since banks are biggest source of funding , the corporate will knock on their doors. The private and foreign banks today are too small as compared to PSU banks.  The PSU banks today  have a share of over 75 per cent in deposits and loans.
5.      Many non-banking businesses like insurance , MFs , venture capital requires capital. Many of the banks  also have non -bank subsidiaries, which requires capital for growth especially the life insurance business. SBI today  has  large subsidiaries in insurance , mutual fund , capital markets , cards etc. These entities also need capital  support in future.
6.      Capital for operational issues  like  investment  in  digital banking - system , processes  and digital products Bankers   have been making big investments in bif data , data analytics , CRMs  , systems , processes , digital products (mobile banking )  etc. Top private banks are already taking a lead in mobile banking. Similarly , SBI  has launched   few digital branches , which will see a national rollout.  
7.      Stock market beating down stocks  due to capital limitations The stock market has b already giving a very lower multiples to PSU stocks. The biggest reason is the capital limitations , which restricts their ability to grow.