India Inc greets govt's Rs2,11,000-cr bank recapitalisation plan

The union cabinet on Tuesday approved a Rs2,11,000-crore recapitalisation plan for NPA-laden public sector banks, giving a big boost to corporate India, which is sitting on a huge pile of unserviceable debt.

India Inc greeted the announcement with great relief, hoping that the pressure on companies to repay debt will ease as finances of banks improve with the fresh round of funding.

Of the proposed Rs2,22,000-crore funds for bank recapitalisation, Rs76,000 crore will be budgetary support and stake sale while the remaining Rs1,35,000 crore will come from front-loaded recapitalisation bonds.

Reports say bad loans with Indian banks have hit a record Rs9,50,000 crore ($145.56 billion) as of June-end, which has curbed banks' ability to lend, which has limited availability of credit to needy sectors.

Banking sector non-performing assets (NPAs) rose from Rs2,75,000 crore in March 2015 to Rs7,33,000 crore as of June 2017, secretary in the department of financial services Rajiv Kumar said. Of this Rs1,75,000 crore relates to just 12 cases which have been referred to NCLT, he added.

Finance minister Arun Jaitley, however, said public sector banks have adequate lending capacity now with the easing of liquidity position post demonetisation.

Jaitley said indiscriminate lending in the past has led to piling up of non-performing assets (NPAs), which were kept under the carpet. .

However, he said, there's no embargo as far as willful defaulters are concerned,  adding that there is also no veil of secrecy and that their names can be published.

Jaitle said micro, small and medium enterprises (MSME) is high priority area for fund infusion through increased lending.

As per the finance ministry presentation, there will be 100 bank-approved project templates and sector specific, MSME customised Mudra financing products. 

The cabinet decision will benefit enhanced market access. This will be facilitated through a GEM portal and will be connected to eCommerce portals.  There will be special campaign in 50 high employment clusters.

Citing the presentations made, the finance minister said it clear that the macro-economic fundamentals are strong and the glide path of the fiscal deficit will continue to be maintained.

The Rs2,11,000 crore capital infusion and series of banking reforms are bold steps to address the NPA issue, he added.

The government has infused about Rs59,000 crore capital to save the banks through the Indradhanush scheme meant to make banks Basel III compliant. Measures, such as the introduction of SARFAESI Act, SBI consolidation and signing of MoUs with 11 PSBs were also taken to strengthen the sector.

The Rs 2,11,000 crore recapitalisation package for public sector banks (PSB) announced by the government on Tuesday is a credit positive and marks a major step in revitalising these institutions saddled with non-performing assets (NPAs), according to credit rating agency Crisil.

PSBs need Rs1,40,000 to 1,70,000 crore additional capital to meet Basel III requirements by 31 March 2019, Crisil said, adding that this will also factored into banks' ratings.