Bank Recapitalisation 'Historic', Will Boost Business: Amit Shah

Randolph Lopez
October 25, 2017

Finance Minister Arun Jaitley on Tuesday announced a Rs 2.11 lakh crore recapitalisation programme for public sector banks meant to address the impact of growing bad loans on banks' books.

"The decision to recapitalise public sector banks with 2.11 trillion rupees will address the bank balance sheet problem and push growth forward", Jaitley said.

According to sources cited by CNBC-TV18, recap bonds may be announced, which would be sold to banks that can then be converted into equity after a certain period.

While speaking to the media Arun Jaitley also highlighted that the government took the cognizance of the rising criticism, and chaired a lot of discussions and reviews of the economy in the past few weeks within the ministry.

Finance Minister Arun Jaitley held a press conference on Tuesday today.

"I had said that we will be ready for the response", Jaitley said.

The Finance Minister said the banks would get Rs 18,000 crore under the Indradhanush plan.

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Officials added the recapitalisation needs would be assessed on factors such as size and performance of a bank, while Jaitley said he expected the capital injection to make bank stocks attractive, helping sales of shares to external investors.

Under the Indradhanush roadmap introduced in 2015, the government had announced infusion of Rs 70,000 crore in state-run banks over four years to meet their capital requirement in line with global banking risk norms known as Basel-III. India's foreign reserves have crossed $400 billion in 2017, compared to $100 billion a year ago, economic affairs secretary Subhash Garg said at the meet. Economic affairs secretary Subhash Garg said in a presentation that several economic indicators such as index of industrial production, core sector, automobiles, consumer spending pointed to a strong growth pick-up and there were expectations of "very good growth from second quarter of the current financial year itself".

The government has set up an ambitious target of raising Rs 72,500 crore from divestment in the public sector units. Lauding the GST, DEA Secretary further added that GST has been one of the biggest reform embraced by the country. In India, power, steel, road infrastructure and textiles sectors are the biggest loan defaulters of state-owned banks.

The yield on benchmark 6.79 percent 2027 bonds declined to 6.77 percent in Mumbai before the government's announcement. He said so far as it boosts confidence it could actually attract private investment.

Large companies have already moved to the bond markets because banks have been unable to lend.

India's banks have been plagued by the highest stressed asset ratio since 2000 that have eroded capital buffers and curtailed lenders' ability to offer credit.

Chandrajit Banerjee, Director General, CII, said: "The government has imparted a huge boost to bank recapitalisation... which is likely to kickstart the credit cycle and facilitate private investments..."

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