PSU banks may get Rs 70,000 crore through recap bonds this fiscal

State-owned banks will get fresh funding of Rs70,000 crore through an issue of recapitalisation bonds over the next four years as the first tranche of a Rs135,000-crore recapitalisation bonds planned by the government.

Finance minister Arun Jaitley had last month announced a Rs2,11,000 crore funding for NPA-hit public sector banks over the next two years to help them remain well capitalised for the Basel-III standards kicking in by 2019.

The plan included re- capitalisation bonds of Rs1.35 lakh crore besides issue of shares by the banks concerned.

Currently, the government is in the process of finalising the structure of bonds and a decision is expected by the end of this month.

The finance ministry is looking at multiple options for recapitalisation bonds and they are being examined and the best ones would be explored, finance minister Arun Jaitley had said.

Recapitalisation bonds count as debt and since it is the government that is going to issue them, it could be counted as part of its fiscal deficit.

A Hindu BusinessLine quoting Sanjeev Sanyal, principal economic advisor to the ministry of finance pointed out that this could become a legacy issue, at ''It can be argued that it is unfair to load it on to the fiscal deficit because it is a pre-existing problem which is being recognised and resolved now. Therefore, it should be ring-fenced in some fashion from the usual fiscal trajectory. I think it is a fair point.''

Nothing has so far been finalised on the issue of recapitalisation bonds

However, nothing has been finalised yet, official sources said, adding that the finance ministry would get better a picture of requirements of various banks after the second quarter results are out.

Non-performing assets (NPAs) of public sector banks have tripled from Rs2,75,000 crore in March 2015 to Rs7,33,000 crore as on June 2017.

Besides recapitalisation bonds, the finance minister had announced that banks would get about Rs 18,000 crore under the Indradhanush plan over the next two years.

In the last three-and-half years, the government has pumped in Rs 51,858 crore capital in the public sector banks. Remaining Rs 18,142 crore would be pumped into banks over two years.