State-run banks with a well-managed balance sheet will get priority in the central government’s recapitalisation programme, the Reserve Bank of India’s (RBI) governor Urjit Patel said on Wednesday, while announcing the central bank’s monetary policy decision. “As announced by the government, the plan will be differentiated across banks. In particular, recapitalisation bonds will be front-loaded for banks that have managed their balance sheet strength more prudently and can use the injected capital to lend, beside providing for legacy asset losses,” Patel said. This, it is expected, will infuse greater liquidity into the system and give a fillip to credit growth.
“The other banks will receive the government’s contribution based on their resolve and progress towards reform, in a significant and time bound manner, such as becoming slim and trim through adoption of simpler and better focussed business strategies, and also possible non-core asset sales,” Patel said. Clearly indicating that the accent will strongly be on banks getting their houses in order. “This should be a reform and recapitalisation package to ensure that this is used to strengthen public sector banks’ balance sheets, and that we don’t sow the seeds of the next boom and bust cycle of lending,” he added.
The RBI has been working closely with the Department of Financial Services to finalise the extent of funds to be raised by the banks and the amount of recapitalisation bonds to be given to banks, as the government’s equity contribution, he said. The details of the recapitalisation plan will be released in the coming days by the Department of Financial Services, he added. In late October, the union cabinet approved a `2.11 lakh crore recapitalisation plan for public-sector banks (PSBs). As per the two-year plan, `1.35 lakh crore will be mobilised through the issuance of recapitalisation bonds and another `58,000 crore will be made accessible by dilution of the government’s equity stakes in the various PSBs. The government will provide a budgetary support of `18,139 crore under the existing Indradhanush Plan, which was meant to infuse `70,000 crore into banks over four years starting from 2015. Patel said that efforts to resolve the bad loan crisis through the National Company Law Tribunal (NCLT) and the government’s recapitalisation plan, which is likely to enhance the allocative efficiency of the banks, will help to create a conducive environment for nurturing growth. The total non-performing assets of the Indian banking sector is more than `8 lakh crore.