Govt gets Lok Sabha approval for Rs 80,000 crore PSBs recapitalisation; FM Jaitley promises more reforms

NEW DELHI: India's biggest state-owned banks are likely to get Rs 80,000 crore of fresh capital this fiscal year after the government sought Parliament's nod for additional spending toward the infusion. Major beneficiaries may include State Bank of India, Bank of Baroda, Canara Bank and Indian Bank, said people aware of the matter.

State-owned lenders rose on the news with the NSE PSU bank index closing 2.69% higher on Thursday, compared with a 0.59% advance in the broader market index. There will not be any net outflow or impact on the budget as the funds will be raised through bonds the government had announced in October 2017.

A senior finance ministry official confirmed that the infusion is aimed at propelling credit growth and only performing lenders will get a bulk of this proposed amount over the next two months. "We have identified around a dozen lenders which will get the maximum amount as growth capital. Other banks need to improve their financials and other key performance metrics to get the remaining amount," he said.

The amount is for "meeting additional expenditure towards recapitalisation of public sector banks through issue of government securities", the finance ministry told Parliament in the third supplementary demand for grants tabled on Thursday. The outgo will be matched by additional receipts on issue of securities to the banks and "will not entail any cash outgo", it added.

BONDS WILL BE NON-TRADABLE
Banks have been recognising bad loans as part of an asset-quality review and seeking to resolve them to clean up their books. The infusion of cash is part of this process and is aimed at encouraging credit pickup to drive investment that's needed to support economic revival.

Non-performing assets (NPAs) of state-run banks spiked to Rs 6.9 lakh crore at the end of September 2017 from Rs 2.67 lakh crore at the end of FY15. The government is already finalising a reforms blueprint for public sector banks that will have about 35 action points, including customer services. Earlier this week, the government infused Rs 7,577 crore into six banks including IDBI, Central Bank of India, Dena Bank and UCO Bank that were in urgent need of capital to meet regulatory requirements.

The government had in October last year announced a Rs 2.11lakh crore capital infusion plan with Rs 58,000 crore of this to be raised by the banks themselves and Rs 1.35 lakh crore through recapitalisation bonds. The finance ministry official cited above confirmed that the proposed bonds will be non-tradable and also not eligible for statutory liquidity ratio (SLR) status for banks and insurers. SLR refers to the proportion of deposits that banks need to invest in government securities. Finance minister Arun Jaitley had earlier noted that the recap plan would be frontloaded.

"So we have frontloaded this amount, the remainder will flow in over the next one year depending upon the requirements of banks," the finance ministry official said. In a research note, rating agency Moody's noted that capital infusion will also help public sector banks build their provisioning coverage ratios as they will be able to allocate much of their operating profits towards loanloss provisioning without having to worry about the impact on their capital positions.

Financial services secretary Rajiv Kumar had earlier said the reforms agenda included strengthening of boards, resolution of non-performing assets and human resources issues so that banks are responsive and engage in responsible banking.