Big bank recap

The Centre, on Thursday, sought parliamentary approval for an additional spend of ₹80,000 crore towards recapitalisation of public sector banks by issuing government securities. This is the first tranche of the ₹1.35-lakh crore bank recapitalisation bonds planned to be issued as part of the overall ₹2.11-lakh crore capital infusion announced in October last year. However, with much of the exuberance already factored in over the past few months, most PSU bank stocks did not react much to the news.

The structure of the bond and the criteria on the basis of which recap bonds will be given to individual banks are critical factors that the market is awaiting. It needs to be seen which banks are infused with capital only to cover their provisioning requirement and which others are handed out additional capital for growth.

For now, given that over the last five years the Centre has infused about ₹89,000 crore (2012-2017) into PSBs, the bounty via recap bonds has no doubt pleased the markets.

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