Recap plan: Govt to infuse over Rs 880 bn into 20 PSBs but with riders

IDBI Bank getting the most at Rs 106 bn, SBI to get Rs 88 bn, Rs 92.32 bn for Bank of India; loans above Rs 2.5 bn will undergo special monitoring

The government today announced Rs 881.39 billion capital infusion in 20 public sector banks (PSBs) during the current fiscal, with IDBI Bank getting the most -- Rs 106.1 billion.

Finance Minister Arun Jaitley said his ministry had undertaken a detailed exercise on the amount of capital to be infused into the PSBs.

The unprecedented Rs 2.1-trillion bank recapitalisation plan announced in October last year was to be spread over two financial years -- 2017-18 and 2018-19. Of the total sum, Rs 1.35 trillion is planned to be raised through recapitalisation bonds, while the banks themselves will raise another Rs 580 billion from share sales.

During the current fiscal, ending March 31, State Bank of India will get Rs 88 billion capital and Bank of India, Rs 92.32 billion.

UCO Bank will get Rs 65.07 billion; Punjab National Bank - Rs 54.73 billion; Bank of Baroda - Rs 53.75 billion; Central Bank of India - Rs 51.58 billion; Canara Bank - Rs 48.65 billion; Indian Overseas Bank - Rs 46.94 billion and Union Bank of India - Rs 45.24 billion.

Oriental Bank of Commerce would get Rs 35.71 billion, Dena Bank Rs 30.45 billion, Bank of Maharashtra Rs 31.73 billion, United Bank of India Rs 26.34 billion, Corporation Bank Rs 21.87 billion, Syndicate Bank Rs 28.39 billion, Andhra Bank Rs 18.90 billion, Allahabad Bank Rs 15 billion, Punjab and Sind Bank Rs 7.85 billion.

Jaitley said steps need to be taken to ensure governance of banks follows highest standards and there is a need for institutional mechanism to ensure past is not repeated.

"We inherited a very major problem and therefore, we have been involved in finding a solution to that problem", he said, adding that "our role really is not only to find a solution but also to create an institutional mechanism to make sure that what happened in the past is not repeated".

The PSBs are faced with mounting non-performing assets (NPAs) or bad loans, putting the financial sector under stress, and need to be recapitalised.

"Now the entire object of this exercise is that the government has the prime responsibility of keeping the public sector banks in good health," Jaitley said.

Rajeev Kumar, Secretary, Department of Financial Services, said bank recapitalisation is dependent on performance and reforms undertaken by the lenders.

He said loans above Rs 2.5 billion will undergo special monitoring.

"Each public sector bank (PSB) is an article of faith. All PSBs will be adequately capitalised and enabled to serve people and support inclusive growth," said Kumar, adding total capital injection including from the government's budget and share sales by banks will amount to over 1 trillion rupees ($15.70 billion) in the financial year ending March 2018.