As the Central Government draws a plan to privatise at least two public sector banks (PSB) this fiscal, it has also decided to front load capitalisation of State-owned banks so that the balance sheets of some of these entities are strengthened ahead of possible sale.
Sources said that PSBs may be provided this year just after their first quarter results before October. This would be a departure from the practice of previous year when bank capitalisation was undertaken late in the year and towards the end of fiscal.
Even in FY21, a substantial portion of capital was released right at end of the fiscal year in March.
“Front loading of capital will help PSBs to strengthen their financials that may again get impacted this year with weak lending and stress coming back on a lot of their credit assets with Covid pandemic continuing to disrupt businesses.
This could also help in taking out weak banks out of the PCA (prompt corrective action) framework that would be helpful in their possible privatisation this year,” said an official source on the condition of anonymity.