DNA Money Edit | Banks: life after recapitalisation

Infusion of Rs 88,139 crore into 20 public sector banks (PSBs) is like throwing a life jacket to the lenders struggling to stay afloat in a sea of bad loans. As Jaitley pointed out, the objective of the exercise is to keep the PSBs in good health, a prime responsibility of the government. The funds will help PSBs meet the regulatory capital ratios under Basel III regulations. The government has also unveiled steps to tackle the bad loan problem that has now reached record levels.

In October 2017, the government had announced the bank recap programme of Rs 2.11 lakh crore, with Rs 1.35 lakh crore having proposed to be infused through recap bonds to be issued by the government and subscribed by PSBs in lieu of the capital they receive. Additionally, Rs 18,000 crore was proposed to be issued through Budgetary allocation and balance of Rs 58,000 crore to be raised by banks through capital markets.

Though the government had earlier mentioned that banks which brought down bad loans will get a higher capital allocation, weaker banks have managed to scoop up most of the current allocation. Analysts believe that the next round of recapitalisation (Rs 64,861 crore in 2018-19) may be based on the performance of banks, with stronger banks likely to receive a higher share.