New Delhi : The Finance Ministry, on Thursday, sought the Parliament’s nod for the extra expenditure of Rs 80,000 crore towards recapitalisation of public sector banks through bonds. Meanwhile, sources told the PTI that the bonds, to be given to public sector banks (PSBs) will have non-statutory liquidity ratio (SLR) status and that they will be non-tradeable.
The Rs 80,000-crore expenditure has been sought by the Centre in the form of the Third Batch of Supplementary Demands for Grants for 2017-18. It is part of the Rs 1.35 lakh crore recapitalisation bond programme to be provided to NPA-hit state-run banks, over two years, in a bid to shore up capital, the unnamed sources added. Parliament’s approval has been sought for “meeting additional expenditure towards recapitalisation of Public Sector Banks through issue of government securities”, said a Finance Ministry document.
The additional expenditure of Rs 80,000 crore, for bank recapitalisation through the issue of government securities will be matched by additional receipts on issues of securities to the banks and “will not entail any cash outgo”, it added. The SLR is a portion of deposits that banks need to invest in government securities. The SLR status to any instrument provides a traceability option and they can be traded in the secondary market. “These bonds will have non-SLR status,” an official told the PTI, adding that these bonds [will] be cash neutral for the government. About when the infusion will take place, the official told the news agency that it will happen during the quarter. The interest payout and other aspects will be looked at by the Department of Economic Affairs (DEA), the official added.
India’s Rs 2.1-trillion fund infusion plans for capital-starved PSBs is likely to reduce the gap in their capital profiles, with their private sector peers, Moody’s said in a report on Thursday. “State-run banks’ weak capital profile is their key credit weakness in comparison to their peers in the private sector. As of September 2017, average common equity Tier 1 (CET1) ratio of the state-run lenders was 8.7 per cent compared to 12.2 per cent for private sector banks. But th gap is expected to narrow with the recapitalisation,” Alka Anbarasu, a vice-president and senior analyst at Moody’s said in the note. She, however, did not quantify by how much the gap will narrow for those harried public sector banks.
“Capital infusion will also help these lenders build their provision coverage ratios as they will be able to allocate much of their operating profit towards loan-loss provisions without having to worry about the impact on their capital positions,” Anbarasu added. Finance Minister Arun Jaitley in October had announced an unprecedented Rs 2.11 lakh crore two-year road map to strengthen India’s PSBs.
