Govt mulls scheme for staff to invest in bank recapitalisation

To exhort employees to invest part of 7th Pay Commission salary hike in proposed fund

The government is looking at a scheme for encouraging its employees to invest part of their 7th Pay Commission salary hike in a fund which would be used for recapitalisation of state-owned banks. High income government official, according to sources, could be roped in to invest in the fund by offering lucrative incentives like tax break or higher return.

According to the proposal, higher income government staff from the rank of Section Officer may be asked to shell out 50 per cent of increased salary towards bank capitalisation bonds, the sources said. Top officials of the finance ministry had preliminary discussion over the issue last week, sources said. However, no decision has been taken yet, they said, adding that Committee of Secretaries is looking into the matter and various alternatives are being considered. This proposal is being considered to find more resources for recapitalisation of public sector banks which are saddled with gross non-performing assets (NPAs) of Rs 3.61 lakh crore at the end of December 2015, as against Rs 39,859 crore in the private sector.

Gross NPA ratio as percentage of advances rose to 7.30 per cent while for private banks, it stood at 2.36 per cent as of December-end.

Reserve Bank of India has asked public sector banks to clean up balance sheets by March next year. Cleaning the books would require additional capital infusion than what has been envisaged in Indradhanush.

Last year, the government had announced a revamp plan Indradhanush to infuse Rs 70,000 crore in state-owned banks over four years, while they will have to raise a further Rs 1.1 lakh crore from markets to meet their capital requirements, in line with global risk norms Basel-III.

In line with the blueprint, public sector banks were given Rs 25,000 crore in FY16 and an equal amount is planned for FY17. According to the plan, Rs 10,000 crore each would be infused in 2017-18 and 2018-19.

It is believed that the government provided as much as Rs 70,000 crore in the Union Budget 2016-17 for implementation of 7th Pay Commission for 4.7 million government employees and 5.2 million pensioners.

While the Budget did not provide an explicit overall provision number, the government had said the Seventh Pay Commission hike has been built in as interim allocation for different ministries and Budget numbers were credible.

Implementation of the Pay Commission report in toto is to cost the government Rs 1.02 lakh crore.