In a bid to boost liquidity, the government on Thursday said it will enhance the capital infusion in public sector banks to Rs 83,000 crore, taking the total to Rs 1.06 lakh crore for the fiscal.

The capital will be pumped in over the next few months, finance minister Arun Jaitley said, adding that the move will increase the lending capacity of public sector banks (PSBs) as well as help some of them come out of the Reserve Bank of India (RBI) watchlist.

The government had earlier announced infusion of Rs 65,000 crore in PSBs in 2018-19, of which Rs 23,000 crore has already been disbursed, while Rs 42,000 crore is remaining.

This amount, sought to be infused in the banks through issue of government securities (recapitalisation bonds), is over and above the Rs 2.11 lakh crore recapitalisation plan announced in October 2017.

The first, of course, is to ensure that banks meet their regulatory capital norms. "The second will be that the better performing banks under PCA are given capital to achieve a 9 percent Capital to Risk Weighted Assets Ratio (CRAR) and required capital conservation buffer and the 6 percent net NPA requirements so that some of them are able to come out of the PCA itself," he said.

The third category will be the non-PCA banks which are very close to the PCA red-line will be provided capital so that they do not come under the framework, he said.

Some capital will also be provided to banks which are going to be amalgamated to meet regulatory norms and growth capital.

CNBC-TV18 caught up with Anil Gupta VP and sector head, Fin Sector Ratings at ICRA; RK Bakshi former executive director, Bank of Baroda; VG Kannan chief executive, Indian Banks' Association (IBA) Jindal Haria, associate director, India Ratings and Sameer Narang, chief economist at Bank of Baroda to understand the implications of this capital infusion.

Anil Gupta said as per the initial estimates Rs 2.11 lakh crore was sufficient to raise the capital from the market.

But the Rs 2.11 lakh crore included Rs 58,000 crore from market raisings which if you look at, after Punjab National Bank (PNB) scam none of the banks have been able to raise the capital from the market, Gupta said.

"With this Rs 41,000 crore this will plug the gap and to a large extent this should be sufficient for the banks to meet their regulatory capital ratios as well as providing growth capital to some banks," he said.

RK Bakshi said, "Capital adequacy is a hygiene factor. It has to be there otherwise if you are under PCA you are not allowed to lend."

VG Kannan said, "Earlier in the year the bankers were requesting if at all any capital infusion is there, it should be done at the earliest because the earlier the money comes, then the bank can operate from a position of strength and start either lending or even making other plans including raising funds from the market."

The decision will certainly help banks under PCA to raise funds from the market or going aggressively for other areas of raising from non-core assets, Kannan added.

"There are three public sector banks which play a dominant role in eastern part of the country, United Bank, UCO Bank and Allahabad Bank and all three banks would have difficulties in trying to meet their minimum capital requirements," Jindal Haria said.

With regard to the amalgamated entity which is Bank of Baroda, Vijaya and Dena Bank, the assessment suggest that they may not necessarily need additional capital to meet the minimum capital requirements, but just in case harmonisation of NPA recognition across the three banks if at all that number surprises on the upside then some capital may be required for them to grow.

Sameer Narang said, "The situation has turned around quite a bit in the last few months because of the NBFC liquidity crisis. NBFCs were actually growing at 20 percent odd and the resources are not available to them. So, the banks have to do the heavy lifting."

The capital infusion should take care of the temporary liquidity squeeze which will happen for NBFCs in February and March, Narang said.