Bank Recapitalisation: PSBs to get infusion of ₹88,139 crore

By Aashi Sehrawat

To boost lending and revive growth, and unveiled steps to tackle the bad loan problems which have touched the record levels, Modi Government has spelled out a new banking roadmap this week. It announced that it will infuse ₹88,139 crores in 20 Public Sector Banks during the current fiscal. These PSU banks, which include State Bank of India, account for more than two-third of India’s banking assets and most of them with more than Rs. 8 lakh crore of non-performing assets (NPAs) or bad loans. Amounts allocated to various PSBs under recapitalisation plan are as follows:

SBI bank to get ₹8,800 crores, OBC to get ₹3,571 crores, IOB to get ₹4,694 crores, Union Bank to get ₹4,524 crores and BoI, being the highest, to get ₹9,232 crores. 

Commenting upon the details of re-cap bonds, S C Garg, Economic Affairs Secretary, said that these bonds will carry a maturity period of 10-15 years and will be treated as non-SLR bonds.

This announcement shows that the government is working on the lending capacity of government-owned banks but this is not the only objective, following are the things affected by this idea:

• Challenge to raise equity from market: This plan includes ₹76,000 crores raised through budgetary and market raising. Though there is no break up given, the government has budgeted ₹10,000 crores from the current years' budget and under the revised plan it has mentioned some ₹18,000 crores. So, there is a possibility that ₹8,000 crores of additional money are coming in this year from the budget. Thus, there is a big challenge for PSBs to raise equity capital either through divestment or through equity expansion.
• Governance and HR reforms is the need of the hour: These PSBs have been suffering. The Bank Board Bureau (BBB) was set up to look into many of these issues but hasn't seen any success. The credit standards are quite weak, resulting in banks sharing bulk of the NPAs in the system. Banks have also been instructed to become more professional.
• The banks will have to keep a strict watch on lending and recovery and undertake specialized monitoring of loans over ₹250 crores.
• The PSU banks will also need to have a dedicated stressed assets management vertical. To ensure financial inclusion, the banks would have to provide doorstep banking for differently-abled and senior citizens.

Strengthening, empowerment and professionalization of bank boards is high on the agenda of the government.