More capital to PSBs will push credit to MSME sector: Arun Jaitley

Finance Minister Arun Jaitley
Finance Minister Arun Jaitley on Sunday said more capital for state-owned lenders would prompt public sector banks (PSBs) to increase credit flow to micro, small and medium enterprises (MSMEs) so that the “third engine” of private investment is fired up to propel growth and create jobs.

Last month, the government had unveiled a Rs 2.11-lakh crore two-year road map to strengthen non-performing asset (NPA)-hit public sector banks, which includes recapitalisation bonds, budgetary support and equity dilution.

Addressing bankers, Jaitley said the government had decided to inject more capital in state-owned banks to strengthen the banking system and spur economic growth. The finance minister assured the bankers that “you won’t find us interfering” in commercial transactions, but “when the system is making all these changes and all these monetary contributions in order to strengthen the banking system, we want robust public sector banking system so that your ability to support growth itself increases”.

As for the engines of growth, there has been a significant increase in public investment and foreign direct investments (FDI) inflows, but private investment has continued to lag. “If you look at the big picture of the economy where governments are spending a lot of public money, a lot of foreign investment is coming in. We need the third engine (private investment) also to fire up, and a robust private sector and MSME sector, so that the optimum growth rate which we have the potential for can be reached,” Jaitley said in his address to top officials at the first-PSB Manthan here.

He said one of the focus areas banks have taken up is to support MSMEs in the first instance because the sector creating jobs and giving a boost to the economy has no access to international finance or the bond market.

Jaitley said the government has decided to put in more capital through bonds and banks’ equity expansion and “therefore, it is the country which is virtually going to pay to keep the banking system in good health”.

Jaitley said the ‘system’ needs to be given a nudge towards responsible and responsive banking and added: “The steps taken in the last two years have directly impacted banking. While one is the success story of financial inclusion, the other one is digitisation. With the latter being the prime focus, more transactions will take place through banks, thus strengthening of the banking system. The goods and services tax, too, has been an enabler, as credit requirements are now clear due to greater transparency.”

NPAs of PSBs have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.78 lakh crore in March 2015. In the last three-and-a-half years, the government pumped in more than Rs 51,000 crore as capital in PSBs.

A stressed situation

Rs 2.11 lakh crore
The govt’s mega recapitalisation plan announced last month

Rs 4,72,227 cr
Net worth of PSBs as of March 2017

Rs 7,33,136 cr
Gross NPAs as of June 2017

Rs 1.4-1.7 lakh cr
PSB’s capital requirement till 2019

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