SBI’s FY18 Capital Infusion: Government Steps in with Rs 8,800 Crore

The Comptroller and Auditor General of India (CAG) presented a report in Parliament on Monday. According to the CAG report, the Department of Financial Services (DFS) has provided the State Bank of India (SBI) with Rs 8,800 crore. It has been given as a part of a recapitalization effort in FY18 (2017-18), despite the fact that the SBI did not request such funds. It is a good news for SBI as the lender did not even asked for it.

The report, entitled “Compliance Audit Report Number 1 of 2023 of the CGI on Union Government (Economic and Service Ministries – Civil)” for FY21, indicates that the finance ministry’s department did not adhere to its usual practice of assessing capital requirements prior to recapitalization.

According to the CAG report, “DFS infused Rs 8,800 crore into SBI in 2017-18 for credit growth considering it the largest PSB in the country even though there was no demand. DFS did not conduct assessment of the capital requirement as per its own standard practice before recapitalisation,”.

The report additionaly stated that the Department of Financial Services (DFS) went beyond the Reserve Bank of India’s (RBI) prescribed norms when recapitalizing public sector banks (PSBs). According to the report, the RBI had already mandated an additional 1% increase in capital requirements for banks in India, which resulted in an excess infusion of Rs. 7,785.81 crore.

Additionally, in 2019-20, DFS provided Bank of Maharashtra with Rs. 831 crore, exceeding the bank’s demand of Rs. 798 crore, to prevent the surrender of funds amounting to Rs. 33 crore. The government recapitalizes public sector banks (PSBs) to promote credit growth, satisfy regulatory capital requirements, aid better-performing lenders under the RBI’s Prompt Corrective Action framework in their exit, and meet capital requirements arising from amalgamation. It will impact the customer’s profit growth and economic sphere of the country.