The Finance Ministry will review the capital needs of public sector banks after the second quarter of the current financial year i.e. By then the moratorium period will be over and the increased figures of bad debt on banks are clear. Finance Ministry sources say economic activity has been sluggish due to the corona epidemic and lockdown, which could lead to a major increase in Non-Performing Assets. If that happens, banks will have to increase the NPA provisions under the directions of the RBI.
The period of moratorium will expire in August, after which the NPA situation will be more clear. Therefore, it would be advisable to make a realistic assessment of the capital needs of the banks only after the second quarter figures come. Uday Kotak, chairman of CII, a banking sector business and industry organisation, said that public sector banks will need financial assistance to support the economy.
If the bad loan increases, banks will need an additional capital of three lakh crore rupees. Rating agencies estimate that 4.5 per cent NPA’s could increase in 2020-21.
Relief from debt restructuring
Sources say if the RBI accepts the appeal for debt restructuring for the areas affected by the corona epidemic, the banks will get relief. This will enable additional time for recovery instead of declaring the amount of debt stranded as NPA.
This will include options such as revision of EMI amount besides changes in interest rate or period. The government has already given rs 3.15 lakh crore to banks in the last 11 years. In 2019-20, a capital of 70 thousand crore was also put in public sector banks.