Humongous bank fund infusion tied to reform firewall against bad loans
By Anuradha Shukla | Express News Service | Published: 25th January 2018 07:16 AM |
NEW DELHI: Assuring people that their deposits in public sector banks (PSBs) were safe, the Union government on Wednesday unveiled a mega capital infusion plan for the current fiscal to revive growth while introducing a slew of safeguards against bad loans that had almost become unmanagable.
Announcing the banking sector reforms, Finance Minister Arun Jaitley said, “Stringent norms for disbursal of high value loans have been framed.”
Rajeev Kumar, secretary, Department of Financial Services, said the government will infuse Rs 88,139 crore capital into PSBs by March 31, but recapitalisation will be tied to performance and reforms. The funds will be infused through a mix of budgetary allocation amounting to Rs 8,139 crore and recap bonds valued at Rs 80,000 crore in the current fiscal.
Lenders will also be required to raise funds on their own from the market to the tune of Rs 10,312 crore. The recap plan would enable additional credit offtake capacity of PSBs by more than Rs 5 lakh crore, Kumar claimed.
Wednesday’s announcement is part of the Rs 2.11 lakh crore bank recap plan announced in October last. Also, recap bonds would not impact the fiscal deficit target as IMF’s rules classify such debt as “below-the-line” financing.
The reforms package involves six themes with 30 action points. “Our role really is not only to find a solution but also to create an institutional mechanism to make sure that what happened in the past is not repeated,” Jaitley said.
The new norms mandate that loans above Rs 250 crore undergo special monitoring. There will also be a separate stressed asset vertical in each bank to contain non-performing assets. And large corporate loan exposure has to be capped at 25 per cent.
The government has asked all banks to identify non-core assets for monetisation and rationalise overseas operations. So far, banks have collectively decided to shut down 41 overseas branches.
Roadmap for Better bank governance
Banks told to limit exposure to big corporate loans to 10% in the case of consortium.
Total large corporate exposure capped at 25%
All loans above Rs 250 cr to undergo special monitoring
Focus on core strengths; identify non-core assets to monetise, PSBs told
Rs 65 crore of first generation bank a/cs will not have any minimum balance penalty
Independent agencies to rank PSBs annually on offering enhanced access and excellence of service