The COVID-19 pandemic has affected businesses across the board and left them struggling in search for capital to survive this crisis. Not just the private sector, the business of Public Sector Units (PSUs) in India have also been adversely affected.

Given the already stretched finances, the Government will have to look beyond the traditional means for sourcing capital for our PSUs.

The public sector banks need capital for making provisions towards new NPAs and writing-off bad debts caused by the pandemic. The Financial Stability Report (FSR) released by RBI in July 2020 estimated the Gross Non-Performing Assets (GNPA) ratio of all Scheduled Commercial Banks (SCBs) to increase from 8.5% in March 2020 to 12.5% in March 2021 under baseline scenario and can worsen to 14.7% under a severely stressed scenario. PSBs also need money for shoring up the capital buffers to meet the capital
adequacy norms.

Not just banks, several non-banking PSUs will require capital infusions in the form of fresh equity capital to survive and cover the losses incurred due to the pandemic. The Government of India’s (GOI) finances are strained and the Government is not in a position to provide the requisite capital to PSUs. In the budget of February 2020, the Finance Minister (FM) had to use an escape clause provision under the Fiscal Responsibility and Budget Management (FRBM) Act to relax the fiscal deficit target by an additional 0.5% of GDP for FY20, from 3.3% (targeted) to 3.8% (revised), citing a slowdown in GDP. The fiscal deficit was budgeted to be 3.5% for FY21. However, these budgeted numbers did not take
into account a pandemic or a lockdown-like scenario.