Government Giving Final Touches To Bank Recapitalisation Bonds, Finance Ministry Approval Soon

The finance ministry is in the process of giving final touches to the Rs 1.35 trillion recapitalisation bonds for public banks, and the framework is expected to get a nod from the finance minister in the next few days, officials familiar with the matter said.

The Department of Financial Services, in consultation with the Reserve Bank of India (RBI), has submitted proposals to the Department of Economic Affairs, which is working on the final structure, a government official said, adding that the final structure of the recapitalisation bonds will be known in the next few days after approval from the finance minister.

The framework once cleared will go to Parliament for necessary approvals, another official said. The upcoming winter session of Parliament will begin on 15 December and continue till 5 January.

Last month, finance minister Arun Jaitley had announced an unprecedented Rs 2.11 trillion PSU bank recapitalisation plan to strengthen public sector banks. The plan includes recapitalisation bonds of Rs 1.35 trillion.

The funding is expected to help strengthen financials of NPA-hit banks. Non-performing assets (NPAs) of public sector banks alone have increased to Rs 7.33 trillion as of June 2017, from Rs 2.75 trillion in March 2015. Besides recapitalisation bonds, the finance minister had announced that banks would get about Rs18,000 crore under the Indradhanush plan over the next two years.

Under the Indradhanush road map announced in 2015, the government had announced infusion of Rs 70,000 crore in state-owned banks over four years while they will have to raise a further Rs 1.1 trillion from the market to meet their capital requirement in line with global risk norms, known as Basel III.

In the last three-and-a-half years, the government pumped in Rs 51,858 crore capital in PSU banks. The remaining Rs 18,142 crore will be injected into the banks over two years.