The central government is expected to earmark around Rs 18,000 crore for capitalization of public sector banks in FY 2016, which is more than double the allocation made in the current financial year. The government is forced to do a rethink on its plans after several public sector banks felt they are unable to raise funds on their own in view of the government’s lack of support in this regard. This financial year, the government has provided Rs 6990 crore to 9 public sector banks to meet their capital requirements. This allocation is to be made on the basis of the banks’ capability to increase ROE and ROA. The budgeted amount on this account is Rs 11,200 crore this fiscal. The finance ministry has estimated that around Rs 2.4 lakh crore would be required for capital infusion in public sector banks in order to make them ready for Basel III. The government is now toying with the idea of setting up an investment company which it expects to take ocare of the capital needs of the public sector banks.
