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Govt to raise Rs. 10312 crore from the market: Jaitley

Govt to raise Rs. 10312 crore from the market: Jaitley

"The entire objective of this exercise has been that it is government's prime responsibility to keep PSBs in good health", Jaitley said.

"With the bulk of recapitalisation funds going to the banks in the PCA category, PSB heavy weights quickly let go off the recent gains, putting pressure on market sentiment", said Anand James, Chief Market Strategist, Geojit Financial Services Ltd. The government has made a decision to give Rs 8,800 crore to the SBI, Rs 5,375 crore to Bank fo Baroda, Rs 4,865 crore to Canara Bank and Rs 4,524 crore to Union Bank among various other PSBs.

In October last year, the government had announced over two lakh crore rupees bank recapitalization plan spread over spread over two financial years 2017-18 and 2018-19. Numerous banks that are receiving huge capital infusion this round are exposed to companies in bankruptcy proceedings.

Finance minister Arun Jaitley said steps need to be taken to ensure that the governance of banks follows the highest standards.

"While PCA banks have got a sizeable amount under the recapitalisation, few banks which are relatively better off have also got funds which should improve their balance sheets and allow them to raise further capital from the markets; and that could drive the next leg of growth for them", he said.

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The capital infusion "should help in part to mitigate the risks that Indian state banks face on account of weak asset quality and poor earnings", Fitch said.

Mr. Kumar also said the recapitalisation package would follow a differentiated approach for banks that have been assigned for prompt corrective action (PCA) and those that have not. Banks had until March 2017 to clean up their books to be eligible for capital infusions. It said the recapitalisation would be dependent on performance and reforms. "Small banks could do well in the near term, given the quantum of capital; however, returning to normalised return on equity will probably take a long time", the report warns. These bonds will be non-tradable and not carry the status of an SLR (Statutory Liquidity Ratio) security, Economic Affairs Secretary Subhash Chandra Garg said.

The government will issue recapitalisation bonds of 10-15 years maturity, carrying interest rate of around 8 per cent or lower. "There is no fiscal impact of bond issuance to banks..."

Among banks now under the PCA, UCO Bank will get Rs 6,507 crore, Central Bank of India Rs 5,158 crore, Indian Overseas Bank Rs 4,694 crore, Oriental Bank of Commerce Rs 3,571 crore, Dena Bank Rs 3,045 crore, Bank of Maharashtra Rs 3,173 crore, United Bank of India Rs 2,634 crore, Corporation Bank Rs 2,187 crore and Allahabad Bank Rs 1,500 crore.

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