Bank recapitalisation: Government may turn to RBI for Rs 43,000 crore as bad loans “swelled” under their watch

By: | Updated: November 2, 2017 2:00 PM

The government wants the central bank to release its entire surplus of Rs 43,000 crore as dividend as the bad loans "swelled under RBI's watch."

Reserve Bank of India demonetised notes, RBI processed 9,711.62 million demonetised notes of Rs 500 and 4,709.72 million of Rs 1,000 notes, RBI TO RTI query, No black money data SAYS RBI, RBI fake notes, printing defects numbersThe Narendra Modi government is planning to seek Rs 43,000 crore from the Reserve Bank of India. (IE)

As part of government massive bank recapitalisation plan, the Narendra Modi government is planning to seek Rs 43,000 crore from the Reserve Bank of India, ET Now reported on Thursday citing sources. The government wants the central bank to release its entire surplus of Rs 43,000 crore as dividend as the bad loans “swelled under RBI’s watch”, ET Now reported.

The government last week announced massive Rs 2.11 lakh crore bank recapitalisation plan, of which 1.35 lakh crore will be through recapitalisation bonds, and remaining 76,000 crore through budgetary allocation and market raising. In the current situation, the fiscal deficit is in a tight position at 91.3% in the first six months ended September 30. In this scenario, the RBI’s dividend of Rs 43,000 crore could be of a great help to the government.

The RBI is entitled to pay a dividend to the government of India under Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934. The Reserve Bank had halved its dividend payout to the government to Rs 30,659 crore for the fiscal ended June 2017, citing lower surplus. The government had pegged Rs 74,901.25 crore as a dividend in FY17. The government was earlier stated to be expecting Rs 58,000 crore in dividend from the RBI in FY18, according to PTI.

Before every annual Budget announcement, the government and the RBI discuss the amount to be transferred as dividend every year. The government puts forward a number, and the RBI, on the basis of its profits and funds needed to be kept aside for contingencies, puts forward a number. After calculations, the RBI provides an indicative figure, which the government puts under the ‘non-tax revenue’ head in the receipts budget.

21 public sector banks account for more than two-thirds of banking assets. These banks also account for a record 9.5 lakh crore of bad loans or non-performing assets. In India, power, steel, road infrastructure and textiles sectors are the biggest loan defaulters of state-owned banks.

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