Lok Sabha gives nod to Rs 80k cr PSB recap plan

PARL TO PASS BANK RECAP BONDS SOON

Bank recapitalisation bonds worth 800 billion rupees, passed by the lower house of Parliament, the Lok Sabha, on Thursday, will be deemed passed by Parliament after two weeks, as the upper hosue, the Rajya Sabha, did not take up the matter for consideration before being adjourned sine die on Friday.

Since the recapitalisation bonds were introduced by the government through a third-batch of Supplementary Demand for Grants, a money Bill, the Rajya Sabha has to return the piece of legislation within 14 days from the date of its receipt. Failing this, the Bill will be deemed to have been passed by both Houses in the form in which it was passed by the Lok Sabha. Responding to a discussion on the Supplementary Demand for Grants in the Lok Sabha on Thursday, Finance Minister Arun Jaitley said the government was in the process of finalising the banks that would benefit from the first tranche of capital infusion through these bonds.

Jaitley said the capital infused by the government in individual banks would be performance-linked and would follow a slew of reforms in the banking sector. The bonds, when issued, will form the first tranche of the union government's 1.35-trillion-rupee programme to infuse capital into state-owned banks through recapitalisation bonds. These recapitalisation bonds account for a majority of the government's\ 2.11-trln-rupee public sector bank recapitalisation programme, which will bolster state-owned banks' capital over a period of two years. The programme also includes the provision of 181 bln rupees through budgetary support and 580 bln rupees through raising of capital by banks from the market.

The government’s recapitalisation move will also aid these banks conform to the Basel III banking rules, which make it mandatory for federal governments to strengthen banks' capital requirements by increasing liquidity and decreasing bank leverage, all by 2019. Basel III (or the Third Basel Accord) is an international regulatory framework aimed at removing deficiencies in financial regulations. Earlier, a Reuters report quoted Moody's Investors Service as saying that it expected all of India’s 21 staterun banks to meet the minimum Basel III requirement of eight per cent common equity Tier 1 (CET1) ratio by March 2019, aided by the recapitalisation programme.

Over the past three years, the Narendra Modi-led government has pumped Rs 51,858 crore into the public sector banks, according to media reports. Jaitley, in October, announced the unprecedented Rs 2.11 lakh crore recap programme, and the two-year road map to strengthen PSBs.