PSU banks may see higher profits, must tap market: CEA

New Delhi: The PSU Banks may see enhanced profits with write-back of some of the loans provisions in their balance sheets on account of the IBC resolutions and they must now tap the market themselves instead of looking for recapitalisation, Chief Economic Advisor Krishnamurthy Subramanian has said.

"The Budget's decision not to recapitalise the PSU banks is a good move and signals that all the banks are adequately capitalised at this point. The Judgement on Essar Steel provides greater clarity on the IBC. State Bank of India profits were boosted by Essar Steel IBC resolution.

Some of those accounts which have been fully written down by banks, when they get resolved, there will be a write-back on account of the resolutions. And this will enhance their profitability and also have an impact on their growth capital.

That's one aspect the government clearly believes that these banks are adequately capitalised. So having all the while supported the banks when they needed support, now government wants them to stand on their own, enhance the governance and tap into the market," Subramanian said.

State Bank of India reported a 41 per cent year-on-year (y-o-y) rise in its net profit during the December quarter to Rs 5,583 crore, which was driven by healthy income from retail loans and an Rs 11,000-crore recovery from Essar Steel, following its sale to ArcelorMittal.

Finance Minister Nirmala Sitharaman said in the Budget that government so far has infused Rs 3.5 crore capital into public sector banks (PSBs) to help them maintain regulatory capital requirements and finance growth plans. In the last Budget, the government had infused Rs 70,000 crore.

"We have infused Rs 3.5 crore capital into PSU banks. A few among them will be encouraged to move capital market for fundraising purposes", she said in her Budget Speech.

Finance Secretary Rajeev Kumar had earlier said banks have to tap the market and government would start gradually lowering its stake from the state lenders. In some of the state-run banks, government stake nearly touches 100 per cent.

Recently Punjab National Bank got board approval to raise Rs 1,000 crore from market through bonds. The IDBI Bank also proposes to raise Rs 1,500 crore from bonds to fund growth.