Government, RBI pledge to keep state-run banks in 'good health'

Lauding the RBI move to help banks besieged by stressed loans by easing rules, union Finance Minister Arun Jaitley on Wednesday said the government will also provide resources to keep state-run banks in good health.

"The RBI last evening (Tuesday) took a very positive move which helps further in recapitalisation of banks," he told representatives of industry associations Federation of Indian Chambers of Commerce and Industry, Confederation of Indian Industry and Assocham at a post-Budget 2016-17 meeting here.

The finance minister said banking is a stressed sector, while the government is professionalising public sector undertaking (PSU) banks and recapitalising them.

"Whatever resources are required to keep PSU banks in good health, we are going to give," he said.

"We are also, after improving their health, going to look at possible consolidation and further reforms and while doing so, we have to maintain fiscal discipline," Jaitley added.

The Reserve Bank of India said on Tuesday that banks can now apply gains from revaluation of property to core capital requirements under certain conditions.

It also allowed conversions of foreign currency in financial statements to be counted as common equity capital, as well as eased rules on counting deferred tax assets.

India's central bank said it was amending the treatment of certain balance sheet items in determining banks' regulatory capital, for further aligning these to the international Basel III capital standards.

As per estimates, public sector banks need up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms.

Continuing government efforts to deal with the high levels of non-performing assets or bad debts of state-run banks, Jaitley, while presenting the 2016-17 general budget in the Lok Sabha on Monday, allocated Rs.25,000 crore towards their recapitalisation in the next fiscal.

Meanwhile, with the bull run on the Indian stock markets continuing for the second straight day on Wednesday, banking stocks were particularly in demand after the RBI announcement on their capital adequacy norms.

The banking index of the BSE was up 4.92 percent, and each of the 10 scrips that go into it ended in gains.