Wednesday, 24 January 2018

India’s stressed banks to get Rs 80,000 crores in 2017-18 under bank recapitalisation plan

Indian Rupee notes

The Government of India has unveiled details of the recapitalisation of Public Sector Banks (PSBs) which was announced in October 2017.  The capital infusion plan for 2017-18 includes Rs.80,000 crore through Recap Bonds and Rs. 8,139 crores as budgetary support. This plan addresses the regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy. 

The recap would be accompanied by a strong reforms package across six themes incorporating 30 action points. The reform agenda is aimed at EASE - Enhanced Access and Service Excellence, focusing on six themes of customer responsiveness, responsible banking, credit off take, banks as Udyami Mitra (investor friendly), deepening financial inclusion & digitalisation and developing personnel for brand PSB. The overarching framework for the reforms agenda is “Responsive and Responsible PSBs”.

Capital infusion by the government is contingent on the performance of PSBs on the reform.  Whole Time Directors of PSBs would be assigned theme wise reforms for implementation.  Their performance in this regard would be evaluated by the bank board. After the successful JanDhan and MUDRA scheme, more and more Indians are connecting to financial systems.

The government of India has envisaged a bank recapitalisation plan of Rs 2,11,000 crores till FY 2019. The capital of Rs 2,11,000 crore accounts for almost 80% of recapitalisation requirements. While the government has not detailed the manner in which capital will be allocated within banks, some banks need capital more urgently than others.

Major credit rating agencies considered the bank recapitalisation move as positive. Although, continuous banking reforms are required along with the use of fintech to avoid such bad loan situations in future.

Source – PIB

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