According to the Reserve Bank of India (RBI) regulations, banks in India are required to maintain a Capital to Risk-Weighted Assets Ratio of atleast 11.50 percent. It aims to maintain capital adequacy in the banks in order to fulfill financial commitments as well as to mitigate financial losses. It is to give protection from various risks such as operational risk, credit risk, and market risk.

Most of the public sector banks in India not only fulfill the criteria but also have CRAR of around 16 percent and more as well.

Capital Adaquecy of Public Sector Banks
In the month of December 2024, the Bank of Maharashtra’s CRAR is about 18.71 percent which is the highest record in between all the public sector banks in India. While, the position of lowest capital position is held by Bank of Baroda. It has a CRAR of about 16.26 percent. Even the lowest CRAR fulfills the criteria of RBI’s capital adequacy regulations.

Overall, it indicates state-run banks are not in need of capital financing at this point of time.

Asset quality of Public Sector Banks
In recent times, asset quality of state-run banks is not risky. In the month of September, 2024, their ratio of gross non-performing assets fell to 2.6 percent of the total credits. As per the recent report of RBI’s Financial Stability, it is the lowest record compared to the records of the previous 12 years. While, the net non-performing assets ratio is close to 0.6 percent.

Financial health of Public Sector Banks
The macro stress tests conducted on Public Sector Banks indicates that these banks have the strong capability to tackle stressful situations. In the month of September, 2024, public sector banks’ capital adequacy was about 16.60 percent. It indicates their strong financial health. It also hints that it is improbable for the Union budget 2025 to provide capital financing for state-run banks in India.
Probability of Capital Investment in Public Sector Banks
In the past, the government of India has often taken an initiative of providing capital investment to state-run banks. In the previous 10 Union Budgets of India, the government of India has given capital investment to public sector banks for about three times. The total capital financing accounts to Rs. 3.35 lakh crore.

The main purpose of these capital investments in the state-run banks is to fulfill the regulations. It is also to maintain strong credit growth. It is important to maintain credit growth as it helps to expand the scope of lending to businesses and people. It results in boosting economic growth. This purpose of boosting credit growth is important in state-run banks compared to private sector banks.

Apart from the funding through the Union Budget, state-run banks were able to get capital financing from the Indian government. It got capital investment of about Rs. 20,000 crore in the financial year 2022. In this same financial year, four state-run banks in India got capital financing of about Rs. 14,500 crore in the month of March. This financing was done with the use of pure discount bonds.

The overall financial health of public sector banks indicates that the budget 2025 may not have new capital investment for public sector banks in India.