Jaitley pledges support to keep PSBs in ‘good health’

Finance Minister Arun Jaitley during his post-Budget interaction with the industry, said banking is a stressed sector and therefore government aims to professionalise PSU banks and recapitalise them with adequate capital.

"RBI last evening took a very positive move which helps further in recapitalisation of banks," he said. This is a move which will have a positive effect on the banking sector as RBI has allowed changes in recognition of capital via revaluation of real estate assets and on foreign currency translation reserves which may be considered as common equity tier I capital (CET1), and these will be reckoned at a discount of 25%.

According to rough estimates RBI move is likely to free up as much as Rs 3,50,000 crore in capital, related to public sector banks, helping them boost buffers while complying with a deadline set to clean up their balance sheets in due course of time. "And therefore, whatever resources are required to keep PSU banks in good health, we are going to take that," Jaitley said. "We are also, after improving the health, going to look at possible consolidation and further reforms, and while doing so, I have fiscal discipline to maintain."

The Finance Minister said that at a time when the private sector has been somewhat conservative in investments, public investment always takes the lead. "And therefore, it was extremely important for us under these circumstances to maintain the discipline," he said. "And I am quite sure, with all the steps we have taken and hopefully in the next financial year, which is politically not obstructive as the last one, we will be able to push through many more reforms." These reforms can help beat the target of up to 7.75 percent GDP growth projected in the Economic Survey, he said.

Stating that maintaining fiscal discipline is extremely important, he said India cannot claim to be the fastest growing major economy in the world if it doesn't maintain its discipline.

The statement from FM along with the RBI decision helped Bank Nifty spike 4.71 per cent in trade led by India’s largest lender SBI (11.80 %). Closely followed by ICICI Bank (7.34 %), PNB (6.80 %) and Bank of Baroda (6.76 %). This move holds importance for all the banking sector companies as they have been reeling under pressure from quite some time.