The government has notified the recapitalization bonds that will allocate Rs 80,000 crore to 20 state-run banks stressed with the burden of accumulated non-performing assets (NPAs), or bad loans.
The bonds, split into six installments, will bear interest rates between 7.35 percent and 7.68 percent and will mature between 2028 and 2033, according to a Finance Ministry notification issued on Monday.
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“The special securities will be issued in the form of ‘stock’ to be held at the credit of the investing bank’s Subsidiary General Ledger Account maintained with the Public Debt Office, Reserve Bank of India, Mumbai,” it said.
The State Bank of India (SBI) will receive the biggest share of capital from the recapitalization bonds, estimated at Rs 8,800 crore, followed by IDBI Bank at Rs 7,881 crore and the Bank of Baroda at 6,975 crores.
Only the notified 20 public sector banks will be eligible to subscribe to the special securities and their subscription to the securities will be limited to the extent of the amount notified.
“The investment in the special security by the investment banks would not be considered as an eligible investment, which they are required to make in government securities in pursuance of any statutory provisions or directions applicable to the investment banks,” it said.
The bonds are non-transferable and cannot be converted into any other form of security, it added.
Last year, the Union Cabinet approved a Rs 2.11 lakh crore recapitalization plan for state-run banks. Last week, the government announced a more detailed plan for recapitalization of public sector banks that includes over Rs 1 lakh crore in capital through recapitalization bonds.
The roots of the NPAs in the Indian banking system — which have reached the staggering level of nearly Rs 9 lakh crore — go back to the boom period in the economy during the previous decade under the United Progressive Alliance (UPA) rule. The bad loans of only the state-run banks add up to around Rs 7.5 lakh crore.
The government has embarked on a two-pronged strategy on bad loans.
On the one hand, it has brought in the Insolvency and Bankruptcy Code (IBC) which provides for a six-month time-bound insolvency resolution process. On the other hand, it has adopted a recapitalization plan to support the state-run lenders.
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