Bank recap to be dependent on performance, reforms, says Finance Ministry official

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"Banks have started the process already and about 41 operations they have made a decision to rationalise", said Financial Services Secretary Rajiv Kumar.

The lenders, which include State Bank of India, account for more than two-thirds of India's banking assets as well as most of the over Rs 8 lakh crore of non-performing assets (NPAs) or bad loans.

The Modi government has begun acting on its announcement past year of giving Rs. 2.1 lakh crore to recapitalise public sector banks.

From recapitalization bonds and budgetary allocations IDBI Bank, the lender with the highest stressed-loan ratio, will get the biggest chunk of 106.1 billion rupees.

The report suggests that Health Minister JP Nadda had written to Finance Minister Arun Jaitley to enhance this year's Budget allocation on public health by whopping 33 per cent to $10 billion on grounds that the government needed to expand vaccination programmes and free drugs distribution system in the country.

He also stated about the "new age PSBs".

"This plan addresses regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy", said the government.

"Governance reforms for state banks have been lethargic, notwithstanding the frequency of talks around changes in governance and underwriting practices at state banks", analysts at Fitch Ratings said.

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"All public sector banks will be adequately capitalized and enabled to serve people and support inclusive growth", Rajeev Kumar, India's top banking bureaucrat, told a news conference.

Mr Kumar said, the Finance Ministry would gauge the performance of banks on parameters like customer responsiveness, responsible banking, credit off-take, MSME lending, deepening financial inclusion and digitalisation.

Calling public sector banks an "article of faith", the Finance Ministry on Wednesday reassured depositors that their money in these banks is safe and no state-owned bank would fail.

Smaller banks however gained.

Economic Affairs Secretary Subhash Chandra Garg said recapitalisation bonds would not have an impact on the fiscal deficit as they would be "cash neutral".

The government will issue recapitalisation bonds of 6-10 years maturity.

Oriental Bank of Commerce would get 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 Ban Rs 2,187 crore, Syndicate Bank Rs 2,839 crore, Andhra Bank Rs 1,890 crore, Allahabad Bank Rs 1,500 crore, Punjab and Sind Bank Rs 785 crore.

Indian Overseas Bank, which received Rs 4,694 crore and was the first to face PCA, welcomed the move.

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