Experts weigh in on govt's Rs 2.11 lakh cr recap plan for PSU banks

Moneycontrol News

The government today announced a Rs 2.11 lakh crore recapitalisation plan public sector banks spread over two years in its bid to shore up their finances, boost private investment and revive the economy.

At a press conference held by Finance Minister Arun Jaitley, Banking Secretary Rajiv Kumar said the government will infuse Rs 1.35 lakh crore through recapitalisation bonds and Rs 76,000 crore through budgetary support and market raising.

The move comes following a 2015 announcement in which the government had sanctioned a Rs 70,000-crore capital infusion under the Indradhanush banking reform scheme, 80 percent of which has already been paid out, and which was dismissed by analysts as being too little.

The Banking Secretary said that banks need to support private investments. The non-performing assets went up from 37 percent in March 2014 to 82 percent by June 2017, he added.

The government expects banks to be globally competitive and faster MSME growth and employment generation.

Former Deputy Governor of RBI Usha Thorat said that the government announcement is a logical step which the market has been awaiting for besides being a decisive move. It will be income generating, she added. On the fiscal front, she said that it increases the debt-to-GDP ratio. She further said that recap bonds are a direct infusion of capital into banks. Banks won't get cash as such from the government. She also added that interest on bonds will be a drain on the government Budget and will impact fiscal deficit.

Ashima Goyal, Member at PMEAC is of the view that PSU bank recapitalization via recap bonds is a positive step. Bonds will be absorbed by the market without serious repercussions as the economy improves.

Moody's Investors Service told CNBC-TV18 that the headline number announced by the government for recapitalising PSU banks is a very significant step for the industry.

State Bank of India Chairman Rajnish Kumar welcomed the announcement and said that it will go a long way in bringing private investments back to the sector.