agencies
New Delhi, Jan 4: The Lok Sabha Thursday gave its approval for Rs80,000 crore recapitalisation bonds for strengthening public sector banks (PSBs), with Finance Minister Arun Jaitley promising that the fund infusion would be accompanied by a series of reforms.
Replying to the debate on third supplementary demands for grants for 2017-18, he said, it is not an ideal option but as the owner of the PSBs, the Centre has the responsibility to bail them out.
The minister further said the Department of Financial services has prepared a detailed plan with regard to capital infusion and the quantum that each bank will get out of Rs80,000 crore during this fiscal for improving their capital adequacy ratio.
The lower house later passed the supplementary demands to meet “additional expenditure towards recapitalisation of public sector banks through issue of government securities”.
The additional expenditure of Rs80,000 crore towards bank recapitalisation through issue of government securities will be matched by additional receipts on issues of securities to the banks and “will not entail any cash outgo”.
The Department of Financial Services, the minister said, was ready with a detailed plan for recapitalisation of various public sector banks and also the quantum to be provided to each bank for improving their capital adequacy.
Some of the banks, according to sources, considered for the recap bonds include State Bank of India, Bank of Baroda, Indian Bank and Canara Bank.
He further said that the fund fusion will help banks to improve their financial health and also their capacity to raise capital from the market. Jaitley had in October announced an unprecedented Rs 2.11 lakh crore two-year road map to strengthen PSBs, reeling under high bad loans. Meanwhile, sources said, the proposed recapitalisation bonds to be given to public sector banks would have non-SLR status and will be non-tradeable. The SLR status to any instrument provides traceability option and they can be traded in the secondary market. Asked by when the infusion would take place, the sources said this would happen soon during this quarter.
Interest payout and other aspect is looked at by the Department of Economic Affairs, sources added.
PSB-pvt bank capital profile gap to shrink with recapitalisation: Moody’s
New Delhi: Moody’s Investors Service Thursday said the government’s Rs2.11 lakh crore capital infusion in PSU banks would narrow the gap between the capital profiles of public and private sector banks. Besides, gross non-performing assets (NPAs) could peak in current fiscal, but elevated levels of provisioning on these NPAs will continue to negatively affect the banks during fiscals 2018 and 2019, Moody’s Indian affiliate ICRA said. “The capital infusion will also help public sector banks build their provisioning coverage ratios as they will be able to allocate much of their operating profits towards loan-loss provisioning without having to worry about the impact on their capital positions,” Moody’s VP and Senior Analyst Alka Anbarasu said. Weak capitalisation profile is the “key credit weakness” of PSU banks when compared to their peers in the private sector, it added.
