Here's all you need to know in 10 points about the recapitalisation plan by the Modi-government to bring in reforms to India's ailing banking system.
In a major step to bring in reforms to India’s ailing banking system, Finance Minister Arun Jaitley said that the cabinet has approved an unprecedented Rs 2.11 lakh crore for recapitalisation of banks over the next two years in a bid to clean banks’ books and revive investment in a slowing economy. Calling the decision as “bold” Arun Jaitley said, “Between 2008 and 2013, public sector banks engaged in indiscriminate lending, which led to the rise in non-performing assets.”
“It was decided that a bold step needs to be taken by the government to recapitalise banks,” he added. The banking sector fears accretion of more than Rs 40,000 crore of bad loans to its books following recent classification of eight consortium accounts of Axis Bank as non-performing assets (NPA) by the RBI.
Here’s all you need to know in 10 points about the massive recapitalisation plan by the Modi government
1. The government plans to recapitalise banks over the next two years improve the lending capacity of the banks.
2. Cabinet has approved a massive Rs 2.11 lakh crore for recapitalisation of banks
3. Of the 2.11 lakh crore, 1.35 lakh crore will be from front-loaded recapitalisation bonds and remaining 76,000 crore from budgetary allocations and market raising.
4. Recap Bonds are used as payment for the shares bought by the government to ailing banks in a bid to raise their capitals, without allowing to expand the fiscal deficit target. Its nature will be decided in due course, Arun Jaitley said.
5. The impact of bank recapitalisation plan on fiscal deficit will depend on nature of bonds. Globally, the issuance of recapitalisation bonds does not impact fiscal spending. The issuance of bonds will also spread over two years.
6. Finance Minister Arun Jaitley called the step “bold” and said it would be followed by a series of reforms. However, he did not give details on them.
7. The government will give Rs 18,000 crore to banks under the Indradhanush plan. Introduced in 2015, the Indradhanush plan was meant 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.
8. Earlier in 2015-2016, public sector banks were given Rs 25,000 crore, and a similar amount has been earmarked for the following years. Besides, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.
9. 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.
10. In India, power, steel, road infrastructure and textiles sectors are the biggest loan defaulters of state-owned banks.