Budget 2016: Jaitley allots Rs.25,000 crore for state-run banks' recapitalisation

As per estimates, PSBs would need additional capital of up to Rs 240,000 crore by 2018 to avoid 2008 US recession like situation

Continuing government efforts to deal with the high levels of non-performing assets (NPAs), or bad debts, of state-run banks, Finance Minister Arun Jaitley on Monday allocated Rs 25,000 crore towards their recapitalisation in the next fiscal.

He made the announcement while presenting in parliament the union budget proposals for the next fiscal.

Jaitley plans to provide Rs 25,000 crore capital each in the current and next fiscal years, while Rs 20,000 crore would be provided during 2017-18 and 2018-19.

In July last, the government had presented to parliament a supplementary demand for grants to provide for Rs 12,000 crore towards recapitalisation of public sector banks (PSBs).

The Rs 25,000 crore this year are being provided through three tranches.

Around 40% of the amount is to be given to those banks which require support, and all PSBs will be brought to the level of at least 7.5% core capital by the end of fiscal 2016, the finance ministry has said.

In the second tranche, 40% of capital is to be allocated to State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank and IDBI Bank.

The remaining 20% is to be allocated to the banks based on their performance during the three quarters in the current year.

As per estimates, PSBs would need additional capital of up to Rs 240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 US financial crisis.

The quantum of exposure of Indian scheduled banks in terms of gross non-productive assets, re-cast loans and write-offs was Rs.9.5 lakh crore as of September last year.

Meanwhile, the government on Sunday named former comptroller and auditor general Vinod Rai the first chairman of the Banks Board Bureau that will give advice on how to recover the bad loans of state-run banks.

The members co-opted to the board are Anil K. Khandelwal, former chair of Bank of Baroda, H.N. Sinor, former joint managing director of ICICI Bank and Rupa Kudwa, former managing director and chief executive of Crisil.

Taking the first step towards a holding company structure for state-run banks, the government, in August last, announced the setting up of a Banks Board Bureau (BBB) that will recommend appointment of directors in PSBs and advise on ways of raising funds and dealing with stressed assets.