Rs 800-bn recap bonds won't affect FY18 fiscal deficit target: FinMin

Subhash Garg, Economic Affairs Secretary
The finance ministry said on Wednesday that Rs 800 billion (Rs 80,000 crore) recapitalisation bonds, to be issued to public sector banks (PSBs) as part of Rs 2.11 trillion capital support over two years, will not have an impact on fiscal deficit as they will be cash neutral.

These bonds will not have Statutory Liquidity Ratio (SLR) and have tenure of 10-15 years, Economic Affairs Secretary S C Garg said.

SLR is a portion of deposits that banks need to invest in government securities.

Asked about the pricing, Garg said it would be three months average price of government securities plus the spread.

"There is no fiscal impact of bond issuance to banks... These will be swap deals and cash neutral. There is not going to be a public issue," he said.

The government has pegged the fiscal deficit target at 3.2 per cent of the GDP for the current financial year.

The additional expenditure of Rs 800 billion (Rs 80,000 crore) towards bank recapitalisation through issue of government securities will be matched by additional receipts on issues of securities to the banks and "will not entail any cash outgo".

Earlier this month, the Lok Sabha gave its approval for Rs 800 billion (Rs 80,000 crore) recapitalisation bonds for strengthening PSBs.

Jaitley in October had announced an unprecedented Rs 2.11 trillion, 2-year road map to strengthen PSBs, reeling under high non performing assets (NPAs) or bad loans. Their NPAs have increased to Rs 7.33 trillion as of June 2017, from Rs 2.75 trillion in March 2015.

The plan included floating re-capitalisation bonds of Rs 1.35 trillion and raising Rs 580 billion (Rs 58,000 crore) from the market by diluting government's stake.

He had also announced that there would be front loading of recapitalisation bonds.