PSU Bank recap: Rising NPAs defeat the purpose

Government is likely to inject Rs 14,000 crore into state-run banks by the end of September 2013 to meet the capital adequacy guidelines of 8%. Government is likely to use the divestmentproceeds of PSUs to recapitalise the banks. A total of Rs 91,000 crore over the next few years will be required to recapitalise public sector banks.

While on the one hand, government is struggling to raise money to keep these banks afloat, poor economic conditions have resulted in higher non-performing assets (NPAs). Reports suggest that Indian banks have restructured more than Rs 2.5 trillion of loans under the corporate debt restructuring (CDR) mechanism.And it is no secret that majority of such restructuring has been undertaken by Public sector banks who account for three-fourth of all lending in the country.

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