Govt. unveils 2.1 lakh crore bank recapitalisation plan

Govt. unveils 2.1 lakh crore bank recapitalisation plan

Context:

• Govt. unveils details of recapitalisation plan for public sector banks

Introduction:

• The government has moved proposal to infuse additional grant of Rs 88,139 crore – Rs 80,000 crore through Recap Bonds and Rs 8,139 crore as budgetary support – for 2018 under the public sector banks recapitalisation plan.
•  The government last year announced the capital infusion plan to pump in Rs 2.1 lakh crore in PSBs – burdened under huge Non-Performing Assets (NPA) – in the course of two years (FY18 and FY19).

Bank’s recapitalization:

• The recapitalisation initiative will be accompanied by a strong reforms package across six themes incorporating 30 action points.
• Major agendas under the action plan are Enhanced Access and Service Excellence (EASE) focusing on six themes of customer responsiveness, responsible banking, credit off-take, PSBs as Udyami Mitra, deepening financial inclusion and digitalisation and developing personnel for brand PSB.  
• A strict watch will be kept on the PSBs’ lending and recovery systems to ensure clean consortium loans with only 10 per cent exposure.
• The PSBs will have to keep in mind they follow a rigorous process for corporate lending and make post-sanction follow-ups in loans above Rs 250 crore.
• In addition to flagging loan defaults in time, the PSBs will initiate stringent loan recovery methods.

Why does recapitalizing PSBs a more effective remedy?

• With India’s economic growth faltering in the last couple of years, the government has been casting about for ways to galvanise the economy like Demonetisation and introduction of GST.
• Its economic benefits will be long in coming while the short-term disruption has been very real.
• Recapitalising public sector banks (PSBs) and enhancing the flow of credit is critical for revitalising India’s growth momentum at a time when the global economy is recovering.
• The move is vital for the slowing economy as private investments remain elusive in the face of the “twin-balance sheet problem” worrying corporate India and public sector banks reflected in slow bank credit growth.
• The PSB’s are reeling under the huge burden of Non-performing Assets (NPAs)

Measures:

• The government has a prime responsibility of keeping the PSBs in good health.
• The government’s job is to create an institutional mechanism to ensure what happened in past is not repeated.
• Steps needed to ensure that banks follow the highest standard of governance in future.
• Bank’s recapitalization is the best exercise in the extensive reform plan.
• The necessary compliance standards need to follow to make the banks strong, professional and accountable institutions.

UdyanMitra decision:

• The government has put a special focus on the Micro Small and Medium Sector by providing credit support and easy application loan facility.
• On UdyanMitra, decision on a loan application will be taken in 15 days, and GST-registered MSMEs will be able to avail enhanced working capital.