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Finance minister Arun Jaitley. Besides recapitalisation bonds, the PSU bank recapitalisation plan also includes the Indradhanush outlay worth Rs18,000 crore. Photo: PTI
Finance minister Arun Jaitley. Besides recapitalisation bonds, the PSU bank recapitalisation plan also includes the Indradhanush outlay worth Rs18,000 crore. Photo: PTI

Bank recapitalisation: Govt giving final touches to recapitalisation bonds, approval soon

The Department of Financial Services, in consultation with RBI, has submitted proposals on recapitalisation bonds to the Department of Economic Affairs, which is working on the final structure

New Delhi: The finance ministry is in the process of putting final touches to the Rs1.35 trillion recapitalisation bonds for public banks and the framework is expected to get nod from the finance minister in the next few days, officials familiar with the matter said.

The Department of Financial Services, in consultation with the Reserve Bank of India (RBI), has submitted proposals to the Department of Economic Affairs, which is working on the final structure, a government official said, adding that the final structure of the recapitalisation bonds will be known in the next few days after approval from the finance minister.

The framework once cleared will go to Parliament for necessary approvals, another official said. The upcoming winter session of Parliament will begin on 15 December and continue till 5 January.

Last month, finance minister Arun Jaitley had announced an unprecedented Rs2.11 trillion PSU bank recapitalisation plan to strengthen public sector banks. The plan includes recapitalisation bonds of Rs1.35 trillion.

The finance minister had said multiple options for recapitalisation bonds were on the government table, are being examined and the best ones would be explored. Once the structure is in place, the government will front load bond issuance, and a preliminary assessment indicates that it could be between Rs70,000-80,000 crore, the official added.

The funding is expected to help strengthen financials of NPA-hit banks. Non-performing assets (NPAs) of public sector banks alone have increased to Rs7.33 trillion as of June 2017, from Rs2.75 trillion in March 2015. Besides recapitalisation bonds, the finance minister had announced that banks would get about Rs18,000 crore under the Indradhanush plan over the next two years.

Under the Indradhanush road map announced in 2015, the government had announced infusion of Rs70,000 crore in state-owned banks over four years while they will have to raise a further Rs1.1 trillion from the market to meet their capital requirement in line with global risk norms, known as Basel III.

In the last three-and-a-half years, the government pumped in Rs51,858 crore capital in PSU banks. The remaining Rs18,142 crore will be injected into the banks over two years.

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