Govt pays ₹22,087 cr interest on recap bonds for lenders
NEW DELHI: The government has spent ₹22,086.54 crore as interest payment towards the recapitalisation bonds for the public sector banks (PSB) in the last two financial years.
During 2018-19, the government paid ₹5,800.55 crore as interest on such bonds issued to public sector banks for pumping in capital so that they could meet the regulatory norms under the Basel-III guidelines.
In the subsequent year, according to official document, the interest payment by the government surged three times to ₹16,285.99 crore to public sector banks as they have been holding these papers.
The concept of recapitalisation bonds was first introduced in 2017. Prior to this, the capital infusion was done by the government to a bank through cash outgo from the Consolidated Fund of India resulting in fiscal burden.
To ease fiscal pressure, the government in October 2017 devised an innovative way called recapitalisation bonds. Under this mechanism, the government issues recapitalisation bonds to a public sector bank which needs capital. The said bank subscribes to the paper against which the government receives the money. Now the money received goes as equity capital of the bank. So the government don’t have to pay anything from its pocket.
However, the money invested by banks in recapitalisation bonds is classified as an investment which earns them an interest. This helps the government in reining fiscal deficit as money for recapitalisation is not coming out from the exchequer.
For holding such bonds, public sector banks would earn about ₹25,200 crore as interest during the current fiscal. This year interest payment will be higher than the combine of the previous two years.
In the first year (2017-18) bonds with six different maturities and coupon rates were issued to banks for infusing capital in public sector banks.
The special securities were issued at par for the amount as per the application made by the eligible banks and the date of issue of the special securities was the date of receipt of subscription amount from the eligible banks. In all, the government has issued about ₹2.5 lakh crore recapitalisation in the last three financial years.
In the first year, the government issued ₹80,000 crore recapitalisation bonds, followed by ₹1.06 lakh crore in 2018-19. During the last financial year, the capital infusion through bonds was ₹65,443 crore.