The government on Thursday sought Parliament's nod for Rs 41,000 crore additional recap bonds for state-owned banks.
Newswire PTI reported that additional capital infusion is being done as the public sector banks (PSBs) have been unable to raise the required funds from the markets.
The government is yet to decide which bank gets how much but according to a report by BloombergQuint, most state-run banks—except State Bank of India, Punjab National Bank, Bank of Baroda and Indian Bank—will get the additional capital infusion.
Lets take a look at what is supplementary demands for grants and how will it help struggling lenders:
What is supplementary demand for grants?
In simple words, supplementary demand for grants is an additional grant over and above a required expenditure, which has already been proposed by the government.
In this case, for the government to rescue the public sector banks, the Rs 2.11 lakh crore allocated is resulting to be insufficient due to the instability in the markets, among other reasons. For the government to pull the state-run banks out of the debt completely, more funds are being required.
When are supplementary demand for grants presented?
When the grants that are authorised by the Parliament fall short of the required expenditure, an estimate in the form of supplementary or additional grants is presented before the Parliament. They are presented and passed by the Parliament before the end of the financial year.
The additional funding of Rs 41,000 crore, which was tabled on Thursday, is over and above the Rs 2.11 lakh crore plan which was announced in October last year.
What's the rationale behind these grants?
As part of the capital infusion plan announced by the finance ministry in October 2017, the government envisaged that PSBs would raise Rs 58,000 crore from the stock markets by March 2019 to meet Basel III norms. However, due to subdued market conditions, banks have been unable to raise enough funds from the markets so far.
The state-run banks are struggling with an enormous pile of non-performing assets or bad loans and huge losses. The situation has compelled the government to pump in funds to make sure that they meet the prescribed capital norms and boost credit disbursements.
A total of Rs 1.86 lakh crore has been proposed through the recapitalisation of bonds and the rest through budgetary allocations. Before the supplementary proposals, the total recap bonds were of Rs 1.45 lakh crore for the last and the current financial year.
First Published: IST