Centre to introduce first tranche of Bank Recap bonds

KR Srivats New Delhi | Updated on January 09, 2018

Centre’s next batch of supplementary demands for grants to include recap bonds

The Centre will bring in the first tranche of the ₹1.35 lakh crore bank recapitalisation bonds in the upcoming batch of Supplementary Demand for Grants slated to come before the Parliament in the ongoing Winter Session, a top official said.

Without disclosing the quantum of Recap bonds that would form part of the Supplementary demand for grants, the Department of Financial Services (DFS) Secretary Rajiv Kumar told BusinessLine here that no decision has yet been taken as to whether the recap bonds would carry ‘SLR’ status or not.

The fact that Government is looking to introduce Recap Bonds through supplementary demand for grants route is a clear pointer that it wants to count such Recap bonds as part of Government borrowing, sources in banking industry said.

It may be recalled that the Finance Minister Arun Jaitley had on October 24 this year announced ₹2.11 lakh crore capital infusion in public sector banks over two years. The capital infusion plan envisaged include ₹1.35 lakh crore coming via Recap bonds and the remaining ₹76,000 crore coming through budgetary support and banks’ tapping the market.

Recap Bond eligibility

Rajiv Kumar said that the Recap bonds will not be inflationary (it does not go to the market); would be cash neutral and other details are being worked out.

He also made it clear that eligibility of banks for the Recap bonds would be a function of their performance, potential and the commitment they take to usher in reforms.

“It (getting Recap Bonds) will not come easily for all the banks. Much would depend on their performance, potential and reforms’ they commit to”, he added.

He also indicated that the actual decision on whether such Recap Bonds would carry a SLR status or not will be taken after the Parliament approval of the Supplementary Demand for Grants.

“We could, in consultation with RBI, take a decision to partly allow SLR — some tranches of Recap bonds carrying SLR and some not carrying”, Kumar said.

The Centre is hopeful that the ₹2.11 lakh crore bank recapitalisation plan will propel micro, small and medium enterprises through enhanced access to markets and help finance such firms in 30 clusters.

Non Performing Assets (NPA) of banks had increased from ₹2.75 lakh crore in March 2015 to ₹7.33 lakh crore as on June 2017.

The Government had launched the Indradhanush scheme in 2015 to infuse ₹70,000 crore in State-run banks over four years to meet their capital requirement in line with Basel-III global risk norms. Banks were allocated ₹25,000 crore in 2015-16 and 2016-17 each; another ₹10,000 crore each will be infused in 2017-18 and 2018-19.

Published on December 16, 2017

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