Stake dilution in PSBs after their health improves: FM Jaitley

The government will dilute its stake in state-run banks to 52% once the health of the lenders improve and the money will be used to inject capital in them, Finance Minister Arun Jaitley said today.

He hoped for a resolution to the burgeoning bad loan problem following the government empowering the Reserve Bank of India (RBI) to order lenders initiate insolvency proceedings against defaulters and create committees to advise banks on recovering non-performing loans.

"We already have a programme under which we have been supporting recapitalisation of banks. Where more funds are required from the government, we will be quite willing to look at that.

"But once the health of the banks themselves improve, we have also announced that the government will be willing to bring down its own equity in the banks to 52% and that can be used for banks' recapitalisation," he said at a CII-Kotak investor roundtable here.

This fiscal, the government has budgeted Rs 10,000 crore of capital infusion in public sector banks.

The amount is lower than Rs 25,000 crore set aside in the previous budget but will be insufficient to help state-run banks raise about Rs 80,000 crore of equity capital that they will require over the next two years to comply with the Basel III norms and support credit growth.

Jaitley said the non-performing assets (NPA) problem is limited to "a certain set of accounts and these numerically are not very large in number but the quantums are high and therefore, they impact the balance sheet of banks".

"Now, we will wait for the result over the next few months of what we decided (through the ordinance) and ensure that under the empowerment that is being given to the RBI, the banking industry itself goes in for resolution," he said.

At a separate interactive session on 'India's Business Environment: Reforms and Opportunities' organised by CII, Indian Embassy and Japan Chamber of Commerce, he said that with the new empowerment of RBI, a resolution to the stressed asset problem will be reached.

"We were trying over the last few years to address this problem and about three days ago, we have empowered the central bank to take certain precipitative action in relation to resolving the issue of stressed asset itself. I do hope, with this new system in place, resolution of lot of stressed asset in India would take place," he said.