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Arun Jaitley: Rs 88,000cr bank recap, reforms plan unveiled

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New Delhi: The government on Wednesday unveiled details of its bank recapitalisation plan with a capital infusion of over Rs 88,000 crore in the current financial year for 20 state-run banks and linked it to a sixpoint reform agenda to restore their health and step up lending to aid growth.

Last year, the government had announced a package to breathe life into ailing PSBs through a Rs 2.11 lakh crore infusion to provide them capital for lending and reviving investment, crucial for job creation in Asia’s third-largest economy.

According to government’s plan, over the next two years it will use recapitalisation bonds worth Rs 1.35 lakh crore. It will also provide support of Rs 18,000 crore and the remaining Rs 58,000 crore will be raised by banks. “We inherited a very major problem and therefore, we have been involved in finding a solution to that problem”, finance minister Arun Jaitley told a news conference. “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. Now the entire objective of this exercise is that the government has the prime responsibility of keeping the public sector banks in good health,” he said.

The capital infusion plans for 2017-18 include Rs 80,000 crore through recapitalisation bonds and Rs 8,139 crore as budgetary support. In addition, the banks will raise Rs 10,312 crore through share sales.

The government expects that the measures undertaken will help additional credit offtake capacity of state-run banks by more than Rs 5 lakh crore. “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 Rajiv Kumar, secretary, department of financial services, asserting that no state-run bank will fail.

The reform agenda is aimed at EASE (enhanced access and service excellence) and focusses on six themes of customer responsiveness, responsible banking, credit offtake, UdyamiMitra for small and medium enterprises, deepening financial inclusion and digitalisation and developing personnel. The government will also launch a survey by an independent agency to monitor the rollout of reform measures and measure public perception about improvements in access and service quality.

Results of the survey would be published every year. “Capital infusion by the government is contingent on performance of PSBs on the reform. Whole time directors of PSBs would be assigned theme wise reforms for implementation. Their performance in this regard would be evaluated by the bank board,” a finance ministry statement said.

As part of the reform agenda, banks will need to tie up with agencies for specialised monitoring for clean and effective post sanction follow up in loans above Rs 250 crore. For large consortium loans the minimum exposure should be 10%. Banks will also need to set up a stressed asset management vertical and all corporate lending will have to follow rigorous due diligence. They will also need to appoint a chief risk officer to check “aggressive and imprudent” lending.

Updated: January 24, 2018 — 9:56 pm

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