Banking

Nearly $14 Billion to be Injected Into Banks This Year as Part of Recapitalisation Plan

The finance ministry will raise Rs 800 billion through recapitalisation bonds, and provide 81.4 billion from its budget to recapitalise the banks.

A commuter walks past the building of India's Ministry of Finance during dusk in New Delhi, May 18, 2015. Credit: Reuters/Adnan Abidi/Files

A commuter walks past the building of India’s Ministry of Finance during dusk in New Delhi, May 18, 2015. Credit: Reuters/Adnan Abidi/Files

New Delhi: Amid growing concern over the banking sector’s burgeoning bad loans, the Centre on Wednesday laid out more details of its bank recapitalisation plan and said that it would infuse Rs 88,000 crore in public sector banks (PSBs) in the current fiscal.

While Rs 80,000 crore will be provided in the form of recapitalisation bonds, another Rs 8,139 crore will come from the forthcoming union budget, finance minister Arun Jaitley said in a press conference on Wednesday. The Cabinet had in October 2017 approved a Rs 2.10 lakh crore recapitalisation plan for PSBs.

IDBI Bank will get  the highest allocation of Rs 10,610 crore, followed by Bank of India and State Bank of India which have been given Rs 9,323 crore and Rs 8,800 crore respectively. UCO Bank will get Rs 6,507 crore, Bank of Baroda Rs 5,375 crore, PNB Rs 5,470 crore, Central Bank of Rs 5,158 crore, India Overseas Bank Rs 4,694 crore, Oriental Bank of Commerce Rs 3,571 crore, Bank of Maharashtra Rs 3,173 crore and Dena Bank Rs 3,045 crore.

Canara Bank has been allocated Rs 4,865 crore, Union Bank of India Rs 4,524 crore, Syndicate Bank Rs 2,839 crore, Andhra Bank Rs 1,890 crore, Vijaya Bank Rs 1,277 crore and Punjab And Sind Bank Rs 785 crore.

The balance funds will be provided in 2018-19.

Jaitley said the government has primary responsibility of keeping public sector banks in good health. Financial services secretary Rajiv Kumar said PSBs are an article of faith and the government is committed to maintaining their regulatory capital requirements. Capital infusion, however, is contingent on performance of PSBs after reforms.

Recapitalisation bonds will be liquidity neutral for the government except for the interest expense that will contribute to the annual fiscal deficit numbers.

Reforms package

Kumar said that recapitalisation would be accompanied by a strong reforms package across six themes and 30 action points. The reforms agenda is based on the recommendations made at the PSB Manthan held in November, 2017 involving senior management of PSBs and representatives from the central government.

The reform agenda is aimed at EASE – Enhanced Access and Service Excellence, focusing on six themes of customer responsiveness, responsible banking, credit off take, PSBs as Udyami Mitra, deepening financial inclusion and digitalisation and developing personnel for brand PSB. The overarching framework for the reforms agenda is “Responsive and Responsible PSBs”, the financial services secretary said.

This fund allocation is in addition to the Rs 70,000 crore committed by the government for recapitalisation of PSBs over the 2015-19 period under the Indradhanush scheme.

PSBs, which together account for over 70% of total bank lending in the country, are saddled with the bulk of bad loans and hence reluctant to step up credit off-take to support the sagging economic growth.

As per a report published by Assocham and Crisil recently, the banking sector’s bad loans could hit the staggering level of Rs 9.5 lakh crore by the end of this fiscal, up from Rs 8 lakh crore as at the end of March 2017.

Last May, the government empowered the Reserve Bank of India to issue directions to PSBs by amending the regulations. Following that, banks have dragged a dozen large corporate defaulters including Essar Steel and Bhushan Steel to the national company law tribunal (NCLT) for bankruptcy proceedings. Their assets are to be auctioned soon but wilful defaulters have been barred from bidding.

Liked the story? We’re a non-profit. Make a donation and help pay for our journalism.