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Govt may not infuse capital into state-run banks in FY23

The government may not allocate funds towards bank capitalisation in the FY23 budget, a first in a decade. This comes as all state-run banks have turned profitable and the newly set up bad bank is expected to help free up capital for lenders.In FY22 budget, the government had set aside Rs 20,000 crore for bank capitalisation."We do not foresee any capital requirement for lenders going forward. They all have plans to raise capital from the markets," said a government official, adding that this year allocation will be done by the end of March."As the economy recovers, we don't expect bad loans to rise substantially putting a pressure on PSBs financials," he said adding that the government is, however, committed towards our banks and will provide them support if needed. The buoyant capital markets are expected to make capital raising easier. 87264894Last month, finance minister Nirmala Sitharaman had said that the government's 4 R strategy of Recognition, Resolution, Recapitalisation and Reform has led to a turnaround in performance of Public Sector Banks (PSBs). "While in 2018, only two of the 21 PSBs were profitable, in 2020-21, only two lenders reported loss," she said adding that Rs 58,697 crore is being raised by PSBs, of which Rs 10,543 is through equity alone.With both Indian Overseas Bank (IOB) and UCO Bank out of the Reserve Bank of India's prompt corrective action (PCA) framework, the government is hopeful that these lenders will also be able to tap the markets soon."We expect Central Bank of India to exit from the regulators plan by next quarter," the above quoted official added.Another government official said that while there may not be any additional requirement for state run banks on account of meeting regulatory norms, the government may take a final call depending on what stage its bank privatisation attempts have reached."If there is some need to support them in order to fetch better valuations, or some other allocation is to be made then this can be looked at," the official added.NITI Aayog has sent a few shortlisted names for bank privatisation to the Group of Ministers (GoM) for consideration.According to a recent report from rating agency, ICRA, state run lenders may not need the capital budgeted by the government for FY2022 as well. "However, it provisions for any unforeseen events and shall provide confidence to banks as well as investors and credit growth," the report noted.