Recap plan will monitor loans above Rs 250 crore

Recap plan will monitor loans above Rs 250 crore

"The entire objective of this exercise has been that it is government's prime responsibility to keep PSBs in good health", Jaitley said.

Giving presentation on banking reforms, Secretary Department of Financial Services, Rajeev Kumar said, repositioning PSBs will lead the growth and serve people responsibly and responsively.

The capital infusion is part of the massive Rs 2.11 lakh crore bank recapitalisation plan announced by the government in October past year.

Among gainers, only IDBI Bank and Bank of India, the two banks that received the most capital, were trading in green, rallying up to 3 per cent on the NSE. State-run lenders account for more than two-thirds of the country's banking assets. The plan will address the regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy.

Siddharth Purohit, research analyst with SMC Institutional Equities, believes banks have received adequate funds, which should improve their balance sheets.

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It said smaller lenders already closely monitored by the central bank had received more funds while the bigger and healthier banks would benefit less. Banks had until March 2017 to clean up their books to be eligible for capital infusions. "The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision", Jaitley had told mediapersons while unveiling banking sector reforms on January 24. This will enable banks to meet their capital requirements and provide for losses due to the sharp increase in bad loans.

While the logic for bank recapitalisation is fiscally strong, and indeed the only viable option, it's the manner and layout of the allocation that should ring a few alarm bells.

Calling public sector banks an "article of faith", the Finance Ministry on Wednesday reassured depositors that their money in these banks is safe and no state-owned bank would fail. These bonds will be non-tradable and not carry the status of an SLR (Statutory Liquidity Ratio) security. Also, recap bonds would not impact the fiscal deficit target as IMF's rules classify such debt as "below-the-line" financing. He added that the bonds are to have a maturity period of 10-15 years and would be issued in six tranches.

Oriental Bank of Commerce would get Rs 3,571 crore, Dena Bank Rs 3,045 crore, Bank of Maharashtra Rs 3,173 crore, United Bank of India Rs 2,634 crore, Corporation Ban Rs 2,187 crore, Syndicate Bank Rs 2,839 crore, Andhra Bank Rs 1,890 crore, Allahabad Bank Rs 1,500 crore, Punjab and Sind Bank Rs 785 crore.

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