Government seeks Parliament nod for Rs 80K-crore PSB recapitalisation

Government seeks Parliament nod for Rs 80K-crore PSB recapitalisation

More reforms being planned to ensure that banks function properly: FM Arun Jaitley.

Arun Jaitley, triple talaq, triple talaq bill in parliament, Supreme Court, Muslim Women (Protection of Rights on Marriage) Bill, India news, Indian Express news
Arun Jaitley arrives in Parliament on Wednesday (Express Photo by Prem Nath Pandey/File)

The government will infuse Rs 80,000 crore of capital in the public sector banks by March-end 2018. The finance ministry on Thursday sought Parliament’s nod for extra expenditure towards recapitalisation of PSBs. This will not entail any cash outgo for the government as the expense will be matched by a corresponding sale of recapitalisation bonds to the banks.

Finance Minister Arun Jaitley said in Lok Sabha on that the move will bring capital into a number of state-owned banks, strengthen their capital adequacy levels and support credit growth in the economy. “The department of financial services already has a detailed plan that is ready,” Jaitley said, adding that there will be a series of reforms that will be announced alongside capital infusion to ensure that banks are able to function properly.

Parliament’s approval has been sought for “meeting additional expenditure towards recapitalisation of Public Sector Banks through issue of government securities” said the finance ministry document. The additional expenditure will be matched by additional receipts on issues of securities to the banks and “will not entail any cash outgo”, it added.

The government last October announced plans to inject Rs 2.11 lakh crore of equity in PSU banks — comprising of Rs 1.35 lakh crore through recapitalisation bonds, Rs 18,000 crore from budgetary resources and Rs 58,000 crore to be raised by the banks from the market. The amount of capital infusion will be higher than the Rs 79,700 crore provided by the government in the eight year period between 2007-08 till 2014-15.


Shares of state-run banks ended higher by up to 8.5 per cent on Thursday on the announcement of capital infusion. The shares UCO Bank jumped 8.50 per cent, IDBI Bank surged 8.33 per cent, Punjab National Bank gained 5.97 per cent, Bank of India went up 3.83 per cent and Bank of Baroda jumped 3.77 per cent on Bombay Stock Exchange. Shares of Oriental Bank of Commerce rose 3.71 per cent, Canara Bank advanced 2.69 per cent, Bank of Maharashtra (2.39 per cent), Indian Bank (1.89 per cent) and State Bank of India (1.72 per cent).

The recapitalisation bonds will not be tradable and unlikely to enjoy the status of an SLR security. Statutory Liquidity Ratio (SLR) is a portion of deposits that banks need to invest in government securities. The issuance of recapitalisation bonds will not impact the government’s fiscal deficit, though these will add to the overall debt. Only interest — about Rs 8000-9000 crore per year — on these bonds will counted towards calculation of the fiscal deficit

Capital infusion became important as the banks faced a mountain of non-performing assets (NPAs), requiring resolution through haircuts. State-owned banks NPAs have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.75 lakh crore in March 2015. Out of the total 22 PSU banks, as many as eight PSU banks currently have gross non-performing assets above 15 per cent and 14 banks have GNPA of more than 12 per cent.

Public sector banks wrote off a record Rs 81,683 crore worth of bad loans in the financial year ended March 2017 – a jump of more than 41 per cent over the previous year’s write off amount of Rs 57,586 crore. Banks wrote off a total of Rs 2.46 lakh crore worth of loans in the last five years.