With an aim to solve record bad loan problems and to boost lending capacity, the Government on Wednesday unveiled the recapitalisation plan, pledging to inject Rs 88,139 crore — Rs 80,000 crore through recap bonds and Rs 8,139 crore through the budgetary allocation — in 20 public sector banks (PSBs) during the current fiscal, with IDBI Bank getting the biggest pie of Rs 10,610 crore.
Finance Minister Arun Jaitley said his Ministry had undertaken a detailed exercise on the amount of capital to be infused into the PSBs. However, the Finance Ministry said, “This plan addresses regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy.” The move is aimed at pulling the country out of a three-year low growth slump.
Most of banks, including State Bank of India, have their more than two-thirds of banking assets as non-performing assets (NPA) or bad loans. The total NPA is Rs 8 lakh crore.
The unprecedented Rs 2.1 lakh crore bank recapitalisation plan announced in October last year was to be spread over two financial years — 2017-18 and 2018-19. A total of Rs 35,828 crore will be infused into nine banks that haven’t triggered prompt corrective action (PCA), including SBI, PNB and Bank of Baroda, while Rs 52,311 crore will be pumped into 11 banks that have triggered PCA, including IDBI, Central Bank of India, and UCO Bank.
Jaitley said steps needed to be taken to ensure governance of banks follows highest standards and there is a need for institutional mechanism to ensure past is not repeated. “We inherited a very major problem and therefore, we have been involved in finding a solution to that problem,” he said.
Cautioning the lenders, Rajeev Kumar, Secretary, Department of Financial Services, said, “Bank recapitalisation is dependent on performance and reforms undertaken by the lenders. loans above Rs 250 crore will undergo special monitoring.”
“Now the entire object of this exercise is that the Government has the prime responsibility of keeping the public sector banks in good health,” Jaitley added.