As already announced, the Government is now coming out with a drastic capital infusion of Rs. 2.11 lakh crore in the PSU Banks, to address the huge NPA issues.  The Government sources further clarified that the Rs. 1.35 lakh crore worth of bank recapitalization bonds of Rs. 2.11 lakh crore recap scheme offered would be issued.  This means that the lending activity of Small and Medium enterprises would be increased which has come down to a three year low level.

The Finance ministry is working on the modalities for issuing these bonds, viz Tenure, coupon, Rate of interest offered etc.,  The Government sources further added that there should be a different treatment for the banks, which are strong when compared to that of the weaker banks.  For weaker banks however, the sources added that recapitalization would be done, only to the extent to cover the NPA positions, and for the stronger banks, there would be capital infusion further apart from the offerings to cover the NPA positions.


  • The banks would be required tro clearn their books further before recapitalization.
  • Writing off a small portion of banks’ NPAs would be essential apart from the cases being referred to the National Companies Law Tribunal under IBC.’
  • The new recap bonds may not come under statutory lending ratios.
  • These bonds would not be zero coupon bonds and the yields would match with the rates offered in the Government securities market.
  • Centre itself would be issuer of bonds, instead of a bank holding company being created to possess shares of banks in exchange for the bonds.
  • The earlier bonds issued in 1990s would be taken as a template which were deemed as held to maturity and were allowed to be traded in the market from 2007

The issue of recap bonds is expected to have no effect on the fiscal deficits.  Let us wait and see the further move of the Government.


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