The central government has provided Rs 10, 000 crore for recapitalisation of banks owned by it, Finance Minister Arun Jaitley said on Wednesday.
He also proposed to increase allowable provision for Non - Performing Asset (NPA) from 7. 5 per cent to 8. 5 per cent to reduce the tax liability of banks.
Presenting the budget in Parliament, he said: "I have provided Rs 10, 000 crore for recapitalisation of banks in 2017 - 18.
Additional allocation will be provided as may be required. "
Jaitley said the government continues to focus on resolving the stressed loan assets of banks.
"The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the Sarfaesi and Debt Recovery Tribunal Acts, " he said.
According to him, listing and trading of Security Receipts issued by a securitisation company or a reconstruction company under the Sarfaesi Act would be permitted in Sebi registered stock exchanges.
"This will enhance capital flows into the securitisation industry and will particularly be helpful to deal with bank NPAs.
Jaitley also gave additional breather to the banks by proposing to increase the allowable provision for NPA from 7. 5 per cent to 8. 5 per cent.
"This will reduce the tax liability of banks.
I also propose to tax interest receivable on actual receipt instead of accrual basis in respect of NPA accounts of all non - scheduled cooperative banks also at par with scheduled banks, " he said.
"This will remove hardship of having to pay tax even when interest income is not realised, " Jaitley added.
Reacting to the announcement, Saswata Guha, Director, Financial Institutions - India at Fitch Ratings told IANS that "the key expectation from the budget was essentially around more capital support for the government banks and considering that the government chose to stick to its original estimate of Rs 100 bn for FY18 (as budgeted) means that PSU banks will have to do bulk of the heavy lifting in the foreseeable future. "
"This obviously puts banks in a very tight position and leaves them little room for supporting growth considering that certain banks are finding it difficult to achieve even minimum capital ratios without government support, " he added.
On the tax relief to the banks, Guha said that alone will be sufficient to address the problems of the banking sector particularly when there are banks which have continued to erode capital through losses.
"Given the current backdrop of persistent losses, continued asset quality stress and weak loan growth, an augmentation in capital support was a natural expectation but the fact that it has not come through is quite disappointing, " he said.
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