The Indian Government today(24 October 2017) approved a very huge Rs.2.11 Lac Crore recapitalisation plan for Public Sector Banks. This amount will be allocated in a span of two years to provide financial support, revive economy and encourage private investments. Banking Secretary Rajiv Kumar told that initially Rs.1.35 lac crore will be allocated as recapitalisation bonds and Rs.76000 crore as budget support and market raise.
This is said to be a bold plan to clean the books of banks and revive investments again. Finance Minister Arun Jaitely said, “Between 2008 and 2013, public sector banks engaged in indiscriminate lending, which led to the rise in non-performing assets. It was decided that a bold step needs to be taken by the government to recapitalise banks.”
Key Takeaways from this Massive Move:
- Improving lending capacity of the public sector banks in a period of 2 years.
- Recapitalisation of Rs.2.11 lac crore for the banks been approved by the Modi cabinet.
- Front loaded recapitalisation bonds worth Rs.1.35 lac crore and Rs.76k crore for budget management.
- Raising capitals for the banks through recap bonds without expanding aims for this fiscal deficit.
- The nature of bonds may impact fiscal deficit but not fiscal spending. These bonds issuance will be executed within 2 years.
- This may lead to series of reforms in public banking sector.
- PSUs will get 18k crore from Indradhanush plan. This plan was brought into existence in 2015 and was supposed to infuse Rs.70k crore in these banks in a span of 4 years within global risk norms, ideally called Basel-III.
- Government gave Rs.25k crore to PSU Banks in FY15-16 and same amount in FY16-17. Now the remaining 20k crore will be given in FY 17-18 and FY 18-19 as 10k crore each year.
- Public Sector Banks have a whooping bad loans or NPAs worth Rs.9.5 lac crore.
- The major loan defaulters of these banks are from the companies in steel, power, textile and infrastructure sectors.
The Chief Economic Advisor, Arvind Subramanian said, “Recap bonds count towards debt but would depend on who is issuing it, government or banks? Under our own accounting practices, it is above the fiscal deficit line.”