Govt gets LS nod for Rs80,000-cr PSB recapitalisation bonds

The Lok Sabha on Thursday approved the government's request for additional spending of Rs80,000 crore for recapitalisation of state-run banks through the issue of bonds. These bonds are part of the proposed Rs1,35,000-crore  recapitalisation bonds proposed to be issued over a two-year period.

The bonds to be issued this fiscal will help infuse Rs80,000 crore in fresh capital into some of the country's major state-owned banks that are sitting on a huge pile of non-performing assets or bad loans of over Rs9,50,000 crore.

Major beneficiaries of the bond programme may include State Bank of India, Bank of Baroda, Canara Bank and Indian Bank, reports quoting people close to the matter said.

Earlier this fiscal, the government had sought Parliament's nod for additional spending toward infusion of fresh capital into these NPA-laden banks.

In the third batch of supplementary demands for grants for 2017-18, the finance ministry had sought Parliament's nod for the extra spending for recapitalisation of banks.

"Parliamentary grant is required for meeting additional expenditure towards recapitalisation of public sector banks through the issue of government securities. After taking into account the additional receipts on issue of securities to public sector banks, this supplementary will not entail cash outgo," according to the supplementary demand document.

Official sources said the recapitalisation bonds to be issued to state-run banks would be non-tradeable and will have non-SLR status, adding that the process of issuing bonds would begin soon.

SLR status gives an instrument the option to be tradeable in the secondary market.

The government had, last year, announced plans to infuse Rs2,11,000 crore into ailing public sector banks in order to equip them with enough capital so that they can increase lending and revive investment.

At the same time finance minister Arun Jaitley and the Reserve Bank of India have unveiled a series of reforms to clean up the banking sector hit by soaring bad loans.

Besides the Rs1,35,000 crore recapitalisation bonds to be issued in two years, the government will provide cash support of Rs18,000 crore with banks will issue Rs58,000 crore through fresh issue of shares.

However, finance minister Arun Jaitley said the government will ensure that its holding in public sector banks remains above Rs52 per cent. 

While announcing a mega recapitalisation plan, finance minister Arun Jaitley had said that strict conditions will be put in place to avoid a repeat of unbridled lending that has resulted in record non-performing assets (NPAs) for the state-run banks.

The policy is to incentivise better performing banks, he has said.

Shares of state-run banks surged up to 8.5 per cent on news of the government's extra spending request for recapitalisation.