Bank recap tied to reforms, govt tells PSBs

'It's not an easy money which is going to come, that is the main point,' said Rajiv Kumar, financial services secretary

Exhorting state-owned lenders to go in for reforms, Financial Services Secretary Rajiv Kumar on Sunday said banks are not going to get easy money as part of the Rs 2.11-lakh crore recapitalisation plan of the government.

Speaking to the media after the first PSB Manthan here, he said the Rs 1.35-lakh crore recapitalisation bonds will be front-loaded and the contours of the bonds are being decided at the level of the finance minister. Banks will also be getting nearly Rs 18,000 crore under the Indradhanush plan.

“Everything is linked to the reforms which each board will consider within a short time as to what kind of business and how they want to go ahead. It’s not easy money which is going to come, that is the main point. It has to be followed with a whole lot of reforms,” the secretary said. 

Kumar said the reforms also include bank boards taking a stand and coming up with a clear plan on consolidation. He emphasised that recapitalisation does not come on its own as it is followed and preceded by a whole lot of reforms.

As for the proposed recapitalisation bonds, he said the plan was to front-load them, meaning most of it would happen in the current year.

Last month, the government had unveiled a Rs 2.11-lakh crore two-year road map to bolster non-performing assets (NPA)-hit public sector banks, which includes recapitalisation bonds, budgetary support and equity dilution. While announcing the government’s plan of capital infusion in public sector banks (PSBs) last month, Finance Minister Arun Jaitley had said it would be accompanied by reforms to enable the lenders to play a major role in the financial system and give a strong push to the job-creating MSME sector.

Giving details on the Manthan attended by top officials of PSBs and financial institutions, Kumar said discussions took place on reforms, including strengthening of bank boards, resolution of NPAs and HR issues, so that they do responsive and responsible banking. Asked about credit growth, Kumar said banks have put forth suggestions in this regard at the meeting. With strong fundamentals of the economy and growth getting back on track in coming months, he said banks are preparing themselves for credit offtake.