Government moves to enhance bank recapitalisation outlay to Rs. 1,06,000 crorein the current financial yearPSBs to be further recapitalised for thrust to banking sector as growth engine.Better-performing PCA banks to be provided adequate capital for coming out of PCA.Government moved proposal in Parliament for enhanced bank recapitalisation outlay fromRs. 65,000 crore to Rs. 1,06,000 crore in the current financial year to propel economicgrowth, cementing India’s position as the fastest growing economy of the world. Thiswould enable infusion of over Rs. 83,000 crore in the coming few months in Public SectorBanks (PSBs).The enhanced provision is aimed at:(1) Meeting regulatory capital norms(2) Providing capital to better-performing PCA Banks to achieve 9% Capital to Risk-weighted Asset Ratio (CRAR); 1.875% Capital Conservation Buffer and the 6% Net NPAthreshold, facilitating them to come out of PCA(3) Facilitating non-PCA banks that are in breach of some PCA thresholds to not be inbreach(4) Strengthen amalgamating banks by providing regulatory and growth capitalFollowing comprehensive clean-up of the banking system under Government’s 4R’sapproach of Recognition, Resolution, Recapitalisation and Reforms, the envisagedrecapitalisation would equip banks financially at levels higher than the global norms. Inthis connection, it is pertinent that India’s capital norms for banks are 1% higher than thenorms recommended under the global Basel-III framework. Further, unlike the earlyintervention regime of other major economies, India’s PCA framework for weaker bankshas more onerous thresholds, viz., higher capital thresholds and a Net NPA threshold thatfurther embeds capital requirement on account of provisioning of NPAs. Today’s proposalin an expression of Government’s commitment that each PSB is an article of faith, and aimsat securing compliance even for the higher regulatory norms.The results of Government’s comprehensive 4R’s approach to strengthen PSBs and foster aculture of clean and responsible banking are now visible:Review in 2015 and with discontinuation of restructuring schemes this year, therecognition exercise is nearly over with such assets declining from the peak of 7.0% inMarch 2015 to 0.59% as of September 2018.Resolutionprocess has been strengthened by changing the creditor-debtor relationshipthrough the Insolvency and Bankruptcy Code and debarment of wilful defaulters andconnected persons, which has resulted in record recovery this year.Recapitalisation,under which, with today’s decision, total mobilisation of capital in PSBssince commencement of clean-up in 2015-16 is slated to be over Rs. 3,00,000 crore.Reformshave accompanied recapitalisation in the form of a comprehensive PSB ReformsAgenda that addresses the root causes of poor asset quality and commits banks to cleanlending and rolling out of next-generation banking services by leveraging benefits oftechnology and formalisation of the economy.Through 4R’s, the banking system has registered sharp reduction in stress and loandefaults, record recovery and steady increase in provision coverage, and is poised tofurther harness the benefit from large-scale resolution anticipated over the current andnext financial years.Major impact of the 4R’s approach is as under:Gross NPAs of PSBs have started declining after peaking in March 2018, registering adecline of Rs. 23,860 crore in the first half of the current financial year.Non-NPA accounts overdue by 31 to 90 days (Special Mention Accounts 1 & 2) of PSBs havedeclined by 61% over five successive quarters from Rs. 2.25 lakh crore as of June 2017 toRs. 0.87 lakh crore as of September 2018, substantially paring down credit at risk.

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