InFINeeti | February 2018
growth in Asia’s third-largest economy.
and the lubrication that oils and feeds that demand. Countries with this kind of problem witness prolonged weak growth.
Therefore, the Indian government approved a state bank recapitalization plan of 2.11 trillion rupees (S$44.2 billion), in a bid to clean banks' books and revive investment in a slowing economy.
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There are three things that will happen: Through budgetary allocations, the government will buy Rs.18,000 crore worth shares of public sector banks and then, public sector banks will need to go raise Rs. 58,000 crore from the market. The government will issue “Bank Recapitalization Bonds” for Rs. 1,35,000 crore which will be used to buy more shares in public sector banks. This plan is nearly ten times higher than the government’s previous pledge as it seeks to reignite
However, this is not the first time the Government has come up with this kind of reform in the banking system. Recapitalization bonds were used in 1990s to inject funds in then state - owned lenders. The economy then was on its way to improvement, after the government unveiled the reforms after the 1991 balance of payments crisis. It forced banks to separate bad loans and the then Finance Minister Manmohan Singh put aside a huge corpus for recapitalization through bonds in the Budget for 1993 -1994. According to the data by Bloomberg, in the year 1994, India had sold about 48 billion rupees of 12-year recapitalisation bonds at a coupon rate of 10 %. According to Goldman Sachs, it could boost credit growth by up to 10 %. The stock markets reacted positively to the news. The day after the announcement, 25th Oct 2017, was a historic day for the markets as the SENSEX closed beyond 33,000 for the