Cabinet approves Rs 2.11 lakh-cr public sector banks' capitalisation plan

Rs 76,000 cr for bank capitalisation will be from budgetary support and markets and Rs 1.35 lakh cr from front-loaded recap bonds

The Indian government approved on Tuesday a state bank recapitalisation plan of Rs 2.11 lakh crore over the next two years, in a bid to clean banks' books and revive investment in a slowing economy.

Of the planned sum, recapitalisation bonds will account for Rs 1.35 lakh crore, while Rs 76,000 crore will come from budgetary support and equity issuance, said Rajiv Kumar, India's financial services secretary.

Finance Minister Arun Jaitley said the recapitalisation of state banks would be followed by a series of reforms. He did not give details.

The nature of the bonds and details of the bonds would be made public during course of time, he said.

Non-performing assets of banks have increased from Rs 2.75 lakh in March 2015 to Rs 7.33 crore as on June 2017.

The finance minister said banks would get Rs 18,000 crore under the Indradhanush plan.

Under Indradhanush roadmap introduced in 2015, the government had announced to infuse Rs 70,000 crore in state- run banks over four years to meet their capital requirement in line with global risk norms, known as Basel-III.

In line with the plan, public sector banks were given Rs 25,000 crore in 2015-16, and similar amount has been earmarked for the following years. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

While banks remain the main source of funding for India's companies, the stubborn bad debt problem has eaten into bank profits and choked off new lending, especially to smaller firms, at a time when an economy that depends on them is stalling.

Twenty one state-run banks account for more than two-thirds of India's banking assets. But they also account for a bulk of the record Rs 9.5 lakh crore of soured loans.

"This milestone announcement on recapitalizing banks in one-go is a bold and courageous move and was indeed the need of the hour. It will generate balance in overall demand and supply by bringing more investments in sectors like infrastructure. These funds will also help in efficiently managing risk and credit capital related requirements of the banks. The steps will also encourage private participation thus boosting growth going forward. The thrust to infrastructure will generate direct and indirect positive cascading effects for lot of related sectors and will create feel good factor for all stakeholders,"  said SBI chairman Rajnish Kumar.