PSU banks : reform with recap  

PSU banks : reform with recap  

Context

The proposed recapitalisation of public sector banks

What has happened?

The proposed recapitalisation of public sector banks will include a package of reforms, Reserve Bank of India (RBI) Governor Urjit Patel said, adding that the finance ministry would release the details in the coming days

Backdrop

• The Centre had announced a ₹2.11 lakh crore recapitalisation plan for PSU banks, of which ₹1.35 lakh crore would be raised through recapitalisation bonds
• Reeling under the pressure of poor asset quality over the last three years, these banks have seen their capital erode
• Apart from making provisions for bad loans, the lenders would need capital to meet the Basel-III norms and to support their business growth

Priority

Banks that had managed their balance sheets ‘well’ would be given priority for capital infusion while others would have to show the resolve to reform

Working with Deptt of finance

The RBI had been working closely with the department of financial services to finalise the plan for each bank: the aim was to determine the extent of funding to be raised by the bank and the amount of recapitalisation bonds to be placed on its balance sheet as the government’s equity contribution.