Narendra Modi govt unveils big revival plan for ailing banks, to front-load Rs 1 lakh cr into PSBs this fiscal
The recapitalisation of banks would be accompanied by strong reforms package across six themes incorporating strong action points, an official statement said.
New Delhi: Seeking to perk up public sector banks that have been hit by huge non-performing assets (NPAs), the government on Wednesday announced plans to infuse over Rs. one lakh crore including Rs 80,000 crore through recap bonds and Rs 8,139 crore as budgetary support during the current fiscal. The government will raise Rs. 10,312 crore from the market, Finance Minister Arun Jaitley disclosed at a press conference here giving details of the recap programme.
Of the recap amount, among others the government will give Rs 10,610 crore to IDBI, Rs 8,800 crore to State Bank of India, Rs 5,375 crore to Bank fo Baroda, Rs 4,865 crore to Canara Bank and Rs 4,524 crore to Union Bank. "We have announced recapitalisation of PSBs in October, 2017 to the tune of Rs 2.11 lakh crore over two years. I have already moved a supplementary grant in Parliament on this. The entire objective of this exercise has been that it is government's prime responsibility to keep PSBs in good health," Jaitley said.
"We inherited a very major problem. The problem is of the past. Our objective was to find solution and create an institution so that the mistakes are not repeated," he said. Banking Secretary Rajiv Kumar said the recap plan would enable additional credit offtake capacity of PSBs by over Rs five lakh crore. Economic Affairs Secretary Subhash Chandra Garg said the recap plan would be cash neutral and the bonds thus issued would be non-SLR (Statutary Liquidity Ratio) and non-tradable.
Jaitley said while planning recapitalisation the government had two objectives -- which bank would get how much money and also that what happened in the past leading to large ammount of NPAs does not repeat itself. He said this would be ensured by making sure that banks follow various steps to ensure that the governance of banks follows higher standards. The recap would be accompanied by strong reforms package across six themes incorporating strong action points, an official statement said.
The six themes include customer responsiveness, responsible banking, credit off take, PSBs as Udyami Mitra, deepening financial inclusion and digitalisation and developing personnel for brand PSB, it said. "The overarching framework for the reforms agenda is Responsive and Responsible PSBs." There are 21 PSBs in the country that comprise 70 percent of the banking industry, said Rajiv Kumar, Banking Secretary.
"This plan addresses regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy," he said. "As discussed earlier this recapitalisation will be front loaded depending on the performance and merit of the PSB," he said adding that loans above Rs 250 crore would be specially monitored. Making a pitch for responsible banking, Kumar said that banks would need to have a minimum 10 percent exposure for consortium loans.
"So unlike earlier when some parties used to take loans from 13-14 lenders, there would now be only six-seven lenders." He also added PSBs should give loans responsibly so that there are no non-performing assets. "A separate stressed asset management vertical will be set up in each PSB. Each bank should adopt a policy according to its core strength." Allaying fears among the public in the wake of social media reports on safety of deposits in PSBs, he said: "Depositors' money in PSB is safe."
The government also said the banks need to identify non-core assets to monetise it. Kumar added that government would not interfere in any PSB's corporate decision making. Talking about how to measure progress of recapitilisation, Kumar said an annual index will be launched, which would be a survey by an independent reputed agency on it. "Taken together, the recap and reform agenda is sharply focused on strengthening PSBs, increasing lending to MSMEs and making it easier for MSMEs and retail customers to transact as well as significantly increasing accress to banking services," the statement said.
"It includes a commitment to banking services within five kilometres of every village, refund within 10 days of any unauthorised debt in electronic transactions, a mobile app for locating banking outlets and a mobile ATM in every undeserved district," it said.
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