Effects of demonetisation on banking system

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Effects of demonetisation on banking system

Credit growth is dependent on factors such as global economic outlook, commodity cycle, stability in global markets, international trade and other macro-economic factors. As per data received from Reserve Bank of India, Gross outstanding advances for Public Sector Banks (PSBs) and Private Banks increased by over Rs 80,000 crore between October 2016 and December 2016.

The Government has carried out the exercise of capitalization of Public Sector Banks (PSBs) to conform to regulatory capital norms as well as to support capital demands of a growing economy. As part of “Indradhanush Plan” undertaken in August 2015, total capital requirement up to FY19 was estimated at Rs 1, 80,000 crore. Out of this, it was estimated that Rs 1,10,000 crore shall be raised by PSBs from the market while Rs 70,000 crore shall be infused by the Government from budgetary allocation. So far, the Government has infused around Rs 50,000 crore into PSBs.

From time to time, the Government permits PSBs to raise capital from public markets through Follow-on Public Offer (FPO) or Qualified Institutional Placement (QIP) by diluting Government of India holding upto 52% based on parameters like their capital requirement, their stock performance, liquidity, market conditions.

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