Govt. Unveils Details Of Recapitalisation Plan For Public Sector Banks (PSB)

The Union government on Wednesday announced the detailed contours of the recapitalisation plan for public sector banks (PSBs) it announced in October last, including a reforms package across six themes that cover 30 action points such as customer responsiveness, responsible banking and credit offtake.

Finance Minister Arun Jaitley and several secretaries of the Finance Ministry, including Finance Secretary Hasmukh Adhia; Financial Services Secretary Rajiv Kumar; and Economic Affairs Secretary Subhash Garg, held a press conference to outline the details of the recapitalisation plan.

The capital infusion plan for 2017-18 includes ₹80,000 crore through recapitalisation bonds and ₹8,139 crore as budgetary support. The bonds are to have a maturity period of 10-15 years and would be issued in six tranches. They will be non-Statutory Liquidity Ratio and non-tradable bonds priced at a three-month average plus a certain spread decided by the government.

The reform plan sets a goal of ‘Enhanced Access and Service Excellence (EASE)’ and the six pillars to achieve this include customer responsiveness, responsible banking, credit offtake, PSBs as Udyami Mitra, deepening financial inclusion, and digitalisation and developing personnel.

Based on PSBs’ performance

The government reiterated that the capital infusion for the PSBs would be contingent on performance. It said that the wholetime directors of the PSBs would be assigned theme-wise reforms to oversee. Their performance on the themes would be evaluated by the boards of the banks.

India desperately needs its lenders to get their bad debts off their books so they can start doling out credit again, after economic growth has slid in recent quarters.

State-run lenders account for more than two-thirds of the country’s banking assets.

Analysts had said mandating reforms would be critical to prevent banks from engaging in the same indiscriminate lending that led to the current problems.

The government also said that it would hire an independent agency to conduct a survey of the PSBs on the aspects of EASE to measure public perception about improvements in access and service quality. The results of the survey would be made public each year.

The recapitalisation and reform agenda includes a commitment to banking services within five km of every village, a refund within 10 days of any unauthorised debit in electronic transactions, a mobile app designed to locate banking outlets, and a mobile ATM in every under-served district.

IDBI Bank, the lender with the highest stressed-loan ratio, will get the biggest chunk of the money at 106.1 billion rupees. Top lender State Bank of India will get 88 billion rupees, while second-biggest Punjab National Bank will get 54.73 billion rupees.

Indian Bank, a smaller but profitable state-run lender, was the only bank to have not been allocated any capital in the latest round.

Source: BS