In a bid to counter bad loans, Bank of India has initiated a host of measures including putting on sale a large non performing asset (NPA) portfolio. Bank of India has put 54 accounts with outstanding of Rs 2,166 crore for sale, CNBC TV18 reported. The public lender has invited ARCS, banks, NBFCs and FIs to bids for these assets, the report added.The lender announced that the accounts will be sold via e-bidding, the report further said. Last year, the government announced an aggressive Rs 2.11 lakh crore capital infusion plan for public sector banks reeling under bad loans over a period of two years. Finance Minister Arun Jaitley, during a press conference, made a brief announcement on the recapitalisation of banks, detailed policy for which is still being worked on by the Finance Ministry. However, the announcement is being seen as a major step towards helping the public sector banks flush with money post demonetisation but reeling under non-performing assets.
What is bank recapitalisation?
Bank recapitalisation, as the name suggests, means recapitalising banks with new capital to improve their balance sheet. The government, using different instruments, infuses capital into banks undergoing credit crunch. Capital is the money invested by shareholders in the business. Since the government is the biggest shareholder in public sector banks, the responsibility of infusing capital majorly lies with the government.
The recapitalisation plan comes into action when banks get caught in a situation where their liabilities are comparatively higher than their assets. The liquidity with banks is a liability as it is the money deposited by customers, which needs to be paid sooner or later. Due to this their balance-sheet weakens and banks find it difficult to raise capital from the open market. The government, which is also the biggest shareholder, can infuse capital in banks by either buying new shares or by issuing bonds.