Govt unveils Rs 2.11 lakh crore plan to strengthen PSU banks

The government today unveiled an unprecedented Rs 2.11 lakh crore two-year road map for strengthening NPA-hit public sector banks, which includes re- capitalisation bonds, budgetary support, and equity dilution.
The capital infusion, Finance Minister Arun Jaitley said, will be accompanied by reforms to enable the state-owned banks to play major role in the financial system and give a strong push to the job-creating MSME sector.
Giving details, Financial Services Secretary Rajiv Kumar said the government has decided to take a massive step to capitalise PSBs (public sector banks) in a "front-loaded" manner, with a view to support credit growth and job creation.

Jaitley said the details of the re-capitalisation bonds would be determined in the due course.
The programme entails mobilisation of capital, with maximum allocation in the current year, to the tune of about Rs 2,11,000 crore over the next two years, through budgetary provisions of Rs 18,139 crore, and recapitalisation bonds to the tune of Rs 1.35 lakh crore.
The balance will be raised by banks from the market by diluting government equity. The government's equity dilution will help banks to raise about Rs 58,000 crore. The government equity, as per the current policy, can come down to 52 per cent in state-owned banks.

Jaitley said the "bold" and "unprecedented" decision on strengthening banks was taken by the Union Cabinet.

"...Rs 2.11 lakh crore is the capital which is intended to be now injected further into the banks. This of course, will be accompanied by series of banking reforms (over next few months...," he said.
Attributing the mess in the PSBs to "indiscriminate" lending during 2008-2014 period of the last UPA government, Jaitley said banking reforms would prevent repetition of such practices.
To a query, Kumar said the government would follow a differential approach in pumping funds into the banks which will include their performance and potential.

Non-performing assets of banks have increased from Rs 2.78 lakh crore in March 2015 to a staggering Rs 7.33 lakh crore as on June 2017.
The finance minister said banks would get Rs 18,000 crore under the Indradhanush plan.
In the last three-and-half years, the government has pumped in Rs 58,848 crore capital in the public sector banks.
When asked about impact of recapitalisation bonds, Jaitley said it would depend upon the nature of the bonds and the issuer.
The unprecedented recapitalisation and the initiatives announced today, the secretary said, are expected to have a noticeable impact in the near-term, contributing to accelerated economic activity, employment and growth of the economy.

The proposal, the finance ministry said, would provide a strong push to MSMEs through enhanced access to financing and markets.
Fintech companies will be roped in to cut down the appraisal process and generate quality loan applications.
MSMEs will be handheld by extending support through compulsory TReDS (Trade Receivables electronic Discount System) registration by major PSUs within next 90 days, for shortening the cash cycle.
Gross advances by banks increased from Rs 52.15 lakh crore as on March 2014 to Rs 58.65 lakh crore at end-March 2017.