Mumbai : Under the recapitalisation plan announced on Tuesday, the government is likely to provide more capital to larger public sector banks to facilitate acquisition of weaker banks, a source privy to the discussions said Thursday. Under the plan, higher allocation of recapitalisation bonds will be given to larger banks to enable consolidation, the source told Cogencis, adding that consolidation in this segment is likely to gather pace in 2018-19 (Apr-Mar). The government on Tuesday announced a 2.11-trln-rupee recapitalisation plan for state-owned banks, including 1.35 trln rupees through issuance of recapitalisation bonds.
The details of the plan, including the nature of bonds and the allocation, are yet to be announced. The government has been working on a plan to facilitate consolidation among public sector banks. Cogencis had earlier reported that the government would initiate the merger process after capitalising banks, including weaker ones. The Cabinet had in August given an in-principle approval for consolidation of public sector banks and set up a ministerial panel to clear individual proposals.
While cultural and geographical factors will be kept in mind, the key factor for mergers will be common technology platforms, the source said. The view is that merger of banks with different technology platforms will lead to integration issues and may nullify the benefits of consolidation, the source said.
No SLR tag to recap bonds
Worried about hurting demand for government securities, the Centre is reluctant to allow the proposed bank recapitalisation bonds to be eligible for maintenance of Statutory Liquidity Ratio, a senior finance ministry official said. “(We are) not keen on SLR status for recapitalisation bonds as it may affect demand for government securities as well as state bonds,” the official said. SLR is the portion of deposits that banks are mandated to invest in liquid assets such as government securities. Allowing bank recapitalisation bonds for maintenance of SLR would directly eat into the captive demand for government securities. The government Tuesday announced a 2.11-trln-rupee recapitalisation plan for public sector banks, including issuance of 1.35 trln rupees of recapitalisation bonds, over a period of two years.
