Finance minister Nirmala Sitharaman is expected to present the second budget of the Modi 2.0 government on February 1.
The government is unlikely to announce capital infusion for the public sector banks (PSBs) in the upcoming Budget and will rather encourage them to expedite recovery of bad loans and raise funds from the market.
Besides, sources said, banks may also look for divesting or selling their non-core business as part of fundraising exercise during 2020-21.
Finance Minister Nirmala Sitharaman is expected to present the second budget of the Modi 2.0 government on February 1.
According to sources, banks have a robust pipeline of recovery from the resolution of both NCLT and non-NCLT cases during this calendar year and also headroom for raising capital from the market.
The provision coverage ratio of public sector banks is at a 7-year high of 76.6 percent.
In some of the non-performing assets, banks have done provisions up to 100 percent, sources said, adding that recovery from those accounts will straightaway form part of the bottom line.
The share price of some of the banks are firming up which provide them the opportunity to dilute government holding, sources said.
Country's largest lender State Bank of India (SBI) has already initiated the process of diluting its stake in its subsidiaries SBI Cards and Payment Services Ltd and UTI Mutual Fund.
It is looking to sell 50 lakh shares representing 1.01 percent stake in the National Stock Exchange (NSE).
A similar exercise is being undertaken by other state-owned lenders as well in an effort to raise capital.
In addition, the government has already front-loaded Rs 68,855 crore, out of Rs 70,000 crore earmarked for capital infusion for the current fiscal, to take care of the mega-merger plan announced in August 2019.
Among all four anchor banks -- Punjab National Bank has given Rs 16,091 crore, Union Bank of India Rs 11,768 crore, Canara Bank Rs 6,571 crore and Indian Bank Rs 2,534 crore.
Merging entities like Allahabad Bank was provided Rs 2,153 crore, United Bank of India 1,666 crore and Andhra Bank Rs 200 crore.
Besides, Bank of Baroda got a capital infusion of Rs 7,000 crore, Indian Overseas Bank Rs 4,360 crore, UCO Bank Rs 2142 crore, Punjab & Sind Bank 787 crore and Central Bank of India Rs 3,353 crore.
LIC-controlled IDBI Bank too received additional capital of Rs 4,557 crore through the first supplementary demands for grants approved by Parliament last month.
With the deadline of March 31 to complete other regulatory requirements, the merged entity will come into existence beginning next fiscal.
Alternative Mechanism of Government of India gave in-principle approval for the merger of United Bank of India and Oriental Bank of Commerce with Punjab National Bank, making the proposed entity the second largest public sector bank (PSB).
Syndicate Bank will be merged with Canara Bank, while Allahabad Bank will be amalgamated with Indian Bank.
Similarly, Andhra Bank and Corporation Bank will be consolidated with Union Bank of India.
The government remains committed to maintaining the financial health of public sector banks and it will provide capital in case if the need arises in the future, sources added.