The government has spent Rs 22,086.54 crore as interest payment towards the recapitalisation bonds for the public sector banks (PSB) in the last two financial years. During 2018-19, the government paid Rs 5,800.55 crore as interest on such bonds issued to public sector banks for pumping in capital so that they could meet the regulatory norms under the Basel-III guidelines.
In the subsequent year, according to official document, the interest payment by the government surged three times to Rs 16,285.99 crore to PSBs as they have been holding these papers. The concept of recapitalisation bonds was first introduced in 2017. Prior to this, the capital infusion was done by the government to a bank through cash outgo from the Consolidated Fund of India resulting in fiscal burden.
To ease fiscal pressure, the government in October 2017 devised an innovative way called recapitalisation bonds. Under this mechanism, the government issues recapitalisation bonds to a public sector bank which needs capital. The said bank subscribe to the paper against which the government receives the money. Now the money received goes as equity capital of the bank. So the government don’t have to pay anything from its pocket. However, the money invested by banks in recapitalisation bonds is classified as an investment which earns them an interest. This helps the government in reining fiscal deficit as money for recapitalisation is not coming out from the exchequer.
For holding such bonds, public sector banks would earn about Rs 25,200 crore as interest during the current fiscal. This year interest payment will be higher than the combine of the previous two years. In the first year (2017-18) bonds with six different maturities and coupon rates were issued to banks for infusing capital in PSBs.
The recapitalisation bonds with maturity date on 29 January 2028 with a coupon rate of 7.35 per cent, while those maturing on 29 January 2029 carrying rate of 7.42 per cent and that of 29 January, 2030 with 7.48 per cent were issued. For paper with maturity date 29 January 2031, coupon rate was fixed at 7.55 per cent; for 29 January 2032, the interest rate 7.61 per cent and the highest rate of 7.68 per cent for 29 January, 2033 paper. The interest payment for these securities started from 2018-19.
The special securities were issued at par for the amount as per the application made by the eligible banks and the date of issue of the special securities was the date of receipt of subscription amount from the eligible banks. They are to be held till maturity, and does not get the status of statutory liquidity ratio, or the minimum sovereign bonds that banks have to subscribe. They can be part of the ”held to maturity category” of investments by public sector banks without any limits. Such securities are not traded.
In all, the government has issued about Rs 2.5 lakh crore recapitalisation in the last three financial years. In the first year, the government issued Rs 80,000 crore recapitalisation bonds, followed by Rs 1.06 lakh crore in 2018-19. During the last financial year, the capital infusion through bonds was Rs 65,443 crore.