Recap exercise may precede government stake sale in PSU banks: Source

Moneycontrol News

A couple of days after the government announced its plan to issue recapitalisation bonds worth Rs 1.35 lakh crore to public sector banks (PSBs), it has come to light that the issuance of these bonds will precede any stake sale by the government in PSBs.

Moreover, weak banks are unlikely to be given any funds over and above the required amount for provisions against bad loans, a government official told CNBC TV18 on the condition of anonymity.

The government had announced a Rs 2.11 lakh crore plan to recapitalise PSBs of which Rs 1.35 lakh crore would be given in the form recapitalisation bonds, Rs 18,000 crore would come from budgetary support, and the rest would have to come from banks raising equity capital by selling stake.

The government also said that it was open to reducing its stake in PSBs to the minimum required 52 percent.

The recap bonds are essentially a tool to use banks’ own deposits to meet their capital needs while deferring the government’s liability towards it. By the time the government fulfils its obligation, it would have made enough market gains to offset the negative impact this move might have on the country’s fiscal deficit.

Although the nature of these securities is still to be deliberated over and determined, the official said that they might carry a market-linked coupon and a non-SLR status, meaning they wouldn’t be a part of the bond holding that banks are mandated to have with the Reserve Bank of India.