The Finance Ministry has said that the additional expenditure of Rs 80,000 crore towards recapitalisation of public sector banks (PSBs) through bonds, as part of Rs 2.11 trillion capital support over two years, will not have an impact on fiscal deficit as they will be cash neutral. Besides, Economic Affairs Secretary S C Garg has noted that these bonds will have 10-15 year tenure and will not have statutory liquidity ratio (SLR) status.
Garg has stated that there is no fiscal impact of bond issuance to banks. He also said that these will be swap deals and cash neutral, and there is not going to be a public issue. He also pointed out that the additional expenditure of Rs 80,000 crore towards bank recapitalisation through issue of government securities will be matched by additional receipts on issues of securities to the banks and will not entail any cash outgo. Talking about the pricing, he said that it would be three months average price of government securities plus the spread.
Earlier, in October, Finance Minister Arun Jaitley had announced an unprecedented Rs 2.11 lakh crore, 2-year road map to strengthen PSBs, reeling under high non-performing assets (NPAs) or bad loans. Their NPAs have increased from Rs 2.75 lakh crore in March 2015 to Rs 7.33 lakh crore as on June 2017. The plan included floating re-capitalisation bonds of Rs 1.35 lakh crore and raising Rs 58,000 crore from the market by diluting government's stake. He had also announced that there would be front loading of re-capitalisation bonds.
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