Uncertainty, delay in capital infusion in PSBs source of

Former Reserve Bank Governor Y V Reddy has raised concerns over the "delay and uncertainty" in capital infusion by the government in public sector banks.

"The uncertainty and delay in government's injecting capital (in state-run banks) as required by the RBI is a source of discomfort, no doubt," Reddy said while speaking on the topic "Keeping Banks Safe" at Shivaji University in Kolhapur yesterday.

During the current financial year, the government has budgeted Rs 65,000 crore of capital infusion in state-run banks. It is a part of the government's massive recapitalisation plan, announced in October 2017, of Rs 2.11 lakh crore over 2017-18 and 2018-19.

In FY18, the state-run banks received Rs 90,000 crore of capital from the government.

Global rating agency, Moody's, in its recent report, had said that recapitalisation plan for this fiscal will broadly resolve the regulatory capital needs of the country's 21 PSBs and help augment the banks' loan-loss buffers, but will be insufficient to support credit growth.

Reddy said it affects the depositors if a bank does not have enough money to pay to the depositors, that is, when the capital is not adequate.

He said from all accounts, the private sector banks have adequate capital to meet the requirements of the depositors' safety.

"But, there is inadequate capital with public sector banks to meet the obligations of the banks to the depositors," former RBI governor said.

He, however, said that it is not a problem for the safety of deposits (for PSBs customers), because the owner is government.

"Sovereign cannot be insolvent. So, while technically capital is inadequate, in reality they are safe. People know this instinctively and, therefore, do not rush to withdraw the deposits," Reddy said.