The small public sector banks must cut their exposure to corporates by a minimum of 15 percent by March 2019, the government has directed the PSBs. Instead the public lenders have been asked by the government to focus more on retail lending, The Indian Express reported. In a communication to chairpersons and CEOs of PSBs, detailing the government’s reforms agenda, Banking Secretary Rajiv Kumar has said banks to ensure board-approved policies in place for achieving the loan exposure mix, for which they can pursue asset swaps and sales with the larger banks. Retail loans such as housing, vehicle and car loans typically exhibit low level of non-performing assets, while corporate loans have been mainly responsible for the build-up of stressed assets in the banking system, the report adds. “It is incumbent on PSBs that the trust reposed by the government translates into economic returns for the country. Holistic and wide ranging reforms need to therefore take place alongside, so that this capital is effectively utilised towards faster economic growth,” Kumar said in his letter.
The government has laid down a roadmap under which the government has asked smaller banks to first cut their corporate loan exposure to either below 40 percent by March 2019 or by at least 15 per cent from the September 2017 level, the Indian Express reported. The government earlier this month sought parliamentary nod for additional Rs 80,000 crore bonds for the PSBs which are sitting on a pile of Rs 9.5 lakh crore bad loans and approved a proposal for infusion of Rs 7,577 crore in 6 weak PSBs. According to CNBC-TV18, Arun Jaitley may choose the Budget presentation day, February 1, to announce bank merger proposals.
Here’s all you need to know in 10 points bank recapitalisation plan
- The government plans to recapitalise banks over the next two years improve the lending capacity of the banks.
- The Union Cabinet approved a massive Rs 2.11 lakh crore for recapitalisation of banks
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.