Government Unveils Details Of Rs 88,000 Crore Bank Recapitalisation Plan: 10 Points

IDBI Bank, the lender with the highest stressed-loan ratio, will get the biggest chunk of Rs 10,610 crore out of Rs 88,139 crore that the government is infusing in state banks.

Government Unveils Details Of Rs 88,000 Crore Bank Recapitalisation Plan: 10 Points

During the current fiscal, ending March 31, State Bank of India will get Rs 8,800 crore

The government will infuse an unprecedented Rs 88,139 crore capital in 20 public sector banks (PSBs) before March 31 to boost lending and to revive growth. This is part of the Rs 2.11 lakh crore bank recapitalisation plan announced in October last year. But the government also said lenders must implement a series of reforms to get the funds, including improving their due diligence, allowing specialised monitoring for loans above Rs 250 crore, and limiting the number of lenders that can group together to dole out loans.

Here Are 10 Things To Know About Bank Recapitalisation: 

1) The finance ministry will raise Rs 80,000 crore through recapitalisation bonds and provide another Rs 8,139 crore from the Budget to recapitalise the banks.

2) The total recapitalisation will cross Rs 1 lakh crore in the fiscal ending March 31, 2018 after including funds raised from sale of shares to external investors, said Rajeev Kumar, secretary, Department of Financial Services.

3) The banking sector in India is staring at Rs 10 lakh crore worth non-performing loans, which have hindered the lending capability of banks. Public sector banks account for the bulk of the non-performing assets (NPAs).

4) Finance Minister Arun Jaitley said steps need to be taken to ensure governance of banks follows highest standards and there is a need for institutional mechanism to ensure the past is not repeated. "Now the entire objective of this exercise is that the government has the prime responsibility of keeping the public sector banks in good health," Jaitley said.

5) The capital allocation will boost state banks' ability to dole out credit by Rs 5 lakh crore, the financial services secretary said, while another official said the bonds will not add to the country's fiscal deficit as they will be accounted for under a separate system.

6) IDBI Bank, the lender with the highest stressed-loan ratio, will get the biggest chunk of the money of Rs 10,610 crore. Top lender State Bank of India (SBI) will get receive Rs 8,800 crore, while second-biggest Punjab National Bank (PNB) will get Rs 5,473 crore.

7) Indian Bank, a smaller but profitable state-run lender, was the only bank to have not been allocated any capital in the latest round.

8) The government's recapitalisation programme should help in part to mitigate the risks that Indian state banks face on account of weak asset quality and poor earnings, says Fitch Ratings.

9) Banks will also have to adopt the differentiated business strategy and exit from non-core businesses and focus on their core competencies. "This is no easy money (that the banks will get)," Mr Kumar said.

10) The financial services secretary said the government would come out with EASE (Enhanced Access & Service Excellence) Index for ranking of banks. This would increase public accountability of PSBs as independent agencies would evaluate and rank PSBs annually on reforms. (With Agency Inputs)

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