The Indian government on Thursday sought parliament approval for Rs 80,000 crore ($12.62 billion) extra spending to recapitalise state banks as part of a move to help lenders deal with bad debts and revive credit growth.
Last October, Finance Minister Arun Jaitley announced the plan to recapitalise banks with Rs 2.11 lakh crore over two years. The programme entails mobilisation of capital, with maximum allocation in the current year through budgetary provisions of Rs 18,139 crore, and recapitalisation bonds to the tune of Rs 1.35 lakh crore over the next two years.
The balance will be raised by banks from the market by diluting government equity. The government's equity dilution will help banks raise about Rs 58,000 crore. The government equity, as per the current policy, can come down to 52 per cent in state-owned banks.
Several state-owned banks have seen a sharp erosion in profits in the last couple of years as NPAs have risen and banks have had to make higher provisioning to account for them. This year, too, the picture is unlikely to be any different even as banks look to speed up the NPA resolution process through the insolvency and bankruptcy code.
(With inputs from Reuters)
