Bank recapitalisation outlay extended!

Government infuses Rs1,06,000 crore

Instead of Rs 65K Crore

Government moves to enhance bank recapitalisation outlay to Rs. 1,06,000 crore in the current financial year

Government today moved proposal in Parliament for enhanced bank recapitalisation outlay from Rs. 65,000 crore to Rs. 1,06,000 crore in the current financial year to propel economic growth, cementing India’s position as the fastest growing economy of the world.

This would enable infusion of over Rs. 83,000 crore in the coming few months in Public Sector Banks (PSBs). The enhanced provision is aimed at: (1)  Meeting regulatory capital norms, (2)  Providing capital to better-performing PCA Banks to achieve 9% Capital to Risk-weighted Asset Ratio (CRAR); 1.875% Capital Conservation Buffer and the 6% Net NPA threshold, facilitating them to come out of PCA.

(3)  Facilitating non-PCA banks that are in breach of some PCA thresholds to not be in breach, (4) strengthen amalgamating banks by providing regulatory and growth capital. Following comprehensive clean-up of the banking system under Government’s 4R’s approach of Recognition, Resolution, Recapitalisation and Reforms, the envisaged recapitalisation would equip banks financially at levels higher than the global norms. 

In this connection, it is pertinent that India’s capital norms for banks are 1% higher than the norms recommended under the global Basel-III framework.

Further, unlike the early intervention regime of other major economies, India’s PCA framework for weaker banks has more onerous thresholds, viz., higher capital thresholds and a Net NPA threshold that further embeds capital requirement on account of provisioning of NPAs. Today’s proposal in an expression of Government’s commitment that each PSB is an article of faith, and aims at securing compliance even for the higher regulatory norms.