Finance Ministry Is in Talks with RBI to Resolve the Recapitalization Bonds Issue

Finance Ministry Is in Talks with RBI to Resolve the Recapitalization Bonds Issue
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The Finance Ministry is in the process resolve issues related to Rs 1.35 lakh crore recapitalization bonds for public banks.  A complete framework is expected to get the nod from Mr. Arun Jaitley‘s office in the next few days, said official sources.

The Department of Financial Services, in consultation with the Reserve Bank of India, has submitted proposals to the Department of Economic Affairs, which is working on the final structure, a Government official said, adding that the final structure will be known in the next few days after approval from the finance minister.

The framework once cleared will go to Parliament for necessary approvals, another official said.

The upcoming winter session of Parliament will begin on December 15 and continue till January 5.

Last month, Finance Minister Arun Jaitley had announced an unprecedented Rs 2.11 lakh crore two-year road map to strengthen public sector banks (PSBs). The plan included re-capitalisation bonds of Rs 1.35 lakh crore.

The finance minister had said multiple options for recapitalisation bonds were on the Government table, are being examined and the best ones would be explored.

Once the structure is in place, the Government will frontload bond issuance, and a preliminary assessment indicates that it could be between Rs 70,000-80,000 crore, the official added.

The funding is expected to help strengthen financials of NPA-hit banks. Non-performing assets (NPAs) of public sector banks alone have increased to Rs 7.33 lakh crore as of June 2017, from Rs 2.75 lakh crore in March 2015.

Besides recapitalisation bonds, the finance minister had announced that banks would get about Rs 18,000 crore under the Indradhanush plan over the next two years.

Under the Indradhanush road map announced in 2015, the Government had announced infusion of Rs 70,000 crore in state-owned banks over four years while they will have to raise a further Rs 1.1 lakh crore from the market to meet their capital requirement in line with global risk norms, known as Basel-III.

In the last three-and-a-half years, the Government pumped in Rs 51,858 crore capital in the PSBs. The remaining Rs 18,142 crore will be injected into the banks over two years.

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