Centre planning a fund to rejuvenate public sector banks

The results of the banking sector have failed to impress this quarter. The major reason for such a negative result was rise in the distressed asset. For the Major PSU banks the combined net loss of 20 public sector banks (PSB) stands at Rs 16,272.34 crore for the fourth quarter ended March 2016 as bad loans situation has worsened. 

Gross NPAs of PSBs have risen from Rs 2,67,065 lakh crore in March 2015 to Rs 3,61,731 lakh crore in December 2015. The gross non-performing assets (NPAs) of the PSBs have increased from 5.43 per cent of advances as on March 2015 to 7.30 per cent as on December 31. 

Taking into consideration the importance of the matter and realising the wider connotation of distressed assets, the Government is planning to set up a fund to invest in the distressed assets of the public sector bank.
Minister of State for Finance, Jayant Sinha on Tuesday said the government is optimistic and there would be keen investors for the stressed assets. The fund size and the investment details are not yet declared, but it is more likely that it would be led by SBI.

Last month, Finance Minister hinted on a meeting on June 6 with the head of PSU banks to discuss this distress issue. However, the direction of the meeting with this news is somewhat clear.

Earlier this year, the government had promised PSU banks a sum of Rs. 25,000 crores in this financial year – less than their combined losses in the second half of the last fiscal year. It could be interesting to watch the allocated size of the funds.

On a positive note, the Banking Index has rallied and has increased by 10 points on an intraday basis.