Urjit Patel, governor of the Reserve Bank of India (RBI), speaks during a news conference in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Recap Bonds To Be Front-Loaded For Prudent Banks, Says RBI Governor

The government’s proposed bank recapitalisation will favour public sector banks which have managed their balance sheets more prudently.

The recapitalisation bonds will be front-loaded for banks which are capable of using the additional capital to lend better, besides providing for bad loans on their books, Reserve Bank of India Governor Urjit Patel said at the press conference following the release of the fifth monetary policy review this fiscal.

The other banks will receive government contribution based on their resolve and progressive towards reform in a significant and time bound manner, such as becoming slim and trim by adoption of better and focussed business strategies as also possibly, non-core asset sales. 
Urjit Patel, Governor, RBI

In October, the government announced a Rs 2.11 lakh crore bank recapitalisation plan, to help public sector banks provision against a large stock of bad loans, while maintaining capital at required regulatory levels. These funds will be infused through a combination of government cash infusion, bank recapitalisation bonds and dilution of government stake through the capital markets.

The total gross non-performing assets of listed Indian banks has risen to Rs 8.4 lakh crore as on Sept. 30, 2017, from Rs 3.4 lakh crore at the end of the second quarter of financial year 2015-16. The RBI has already placed seven public sector banks under its prompt corrective action plan owing to high NPAs and weak capital position.

The recapitalisation plan will be a “reform and recapitalisation” package and not just another recapitalisation package, Patel said. This is to ensure that the money is utilised to strengthen public sector bank balance and “not to sow the seeds for the next boom and bust cycle” of lending, Patel said.

The regulator, along with the ministry’s representatives, is putting together estimates on how much government infusion and capital market fund raising would be required by individual state-owned lenders. The Department of Financial Services of the finance ministry will release final details of the package in the coming days, Patel added.