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Public sector banks agree to govt terms for Rs 800-billion recap bonds

The Rs 800-billion recapitalisation bonds will have a tenure of 10-15 years and would carry a coupon rate in the range of 7.35-7.68%

Somesh Jha  |  New Delhi 

Illustration by Ajay Mahanty
Illustration by Ajay Mahanty

All the 20 public sector (PSBs) have obtained approval from their respective boards for the terms and conditions put forth by the Union government to receive capital infusion through bonds as part of the recapitalisation plan.

Boards of were required to approve the (Enhanced Access and Service Excellence) plan, chalked out by the Centre, to implement the reforms agenda for “responsive and responsible PSBs”. The process was mandatory for to get recapitalisation funds from the government, which is to infuse Rs 800 billion in the current financial year.

“We have received communication from all that their boards have approved the plan. We are sending a proposal to the Department of Economic Affairs (DEA), seeking its approval on issuing the recapitalisation bonds,” a government official said. The approval from the DEA might take one week, the official added, following which the bonds would be issued. The government will additionally infuse Rs 81 billion into from its own finances.

The government has set strict terms, under the plan, for issuing the The terms require to create a stressed asset management vertical, tie up with agencies for specialised monitoring of loans above Rs 2.5 billion, conduct strict surveillance of big loan defaulters, and appoint a whole-time director for monitoring reforms every quarter, among other steps.

“We will provide funds under the as committed in January,” said another official. However, the government will not increase the recapitalisation funds for (PNB), which has reported a Rs 129 billion scam through fraudulent letters of undertakings, the official added. PNB is set to receive Rs 54.7 billion this financial year.

The Rs 800-billion will have a tenure of 10-15 years and would carry a coupon rate in the range of 7.35-7.68 per cent. Termed “non-transferable special government of India security”, the bond will carry an interest rate, also known as the coupon rate, of 7.35 per cent for bonds maturing in 2028, 7.42 per cent for 2029, 7.48 per cent for 2030, 7.55 per cent for 2031, 7.61 per cent for 2032, and 7.68 per cent for 2033.

will get the highest infusion, Rs 88 billion, through the recapitalisation bonds, followed by IDBI Bank (Rs 78.8 billion) and Bank of India (Rs 69.7 billion). Eleven facing prompt corrective action by the Reserve Bank of India will receive Rs 523 billion this financial year, while comparatively healthy will receive Rs 358 billion.

The recapitalisation plan of Rs 2.11 trillion, announced last year by the government, will be done in phases. Apart from the Rs 800 billion in bonds, the balance Rs 1.35 trillion will be mobilised through budgetary support and market borrowing.

First Published: Wed, March 14 2018. 00:28 IST