Call it India's version of TARP-the troubled asset relief program the USA introduced after the 2008 mortgage crisis. "As discussed earlier this recapitalisation will be front loaded depending on the performance and merit of the PSB", said Kumar. A sum of Rs 83,346 crore was collected as GST for October, while it was Rs 95,131 crore in September. Back then, the government had spelt out only the basics about the plan. "There is not going to be a public issue".
For instance, all loans above Rs 250 crore would be scrutinised by specialised monitoring agencies.
The bank bailout schemes of successive governments while keeping the sector afloat encourages reckless and unprofessional practices to fester, and the distribution of capital, in the name of meeting the benchmark, actually rewards reckless.
The report suggests that Health Minister JP Nadda had written to Finance Minister Arun Jaitley to enhance this year's Budget allocation on public health by whopping 33 per cent to $10 billion on grounds that the government needed to expand vaccination programmes and free drugs distribution system in the country.
Yet, not everyone is convinced that these measures are enough.
Though most experts remain bullish on the banking space from a long-term perspective, they suggest investors be selective and buy only those banks whose non-performing assets are at a manageable level of 3 - 4 per cent and there is credit growth / earnings visibility. Recapitalisation of banks under the PCA framework will allow them to reduce the NPAs as well as improve capital ratios. Bank have also been instructed to become more professional. They would also have to comply with global capital adequacy ratios. For the PCA banks, he said, the principle objective appears to be that they maintain their regulatory capital and it has been the criterion followed for IDBI. Of the total sum, Rs 1.35 lakh crore is planned to be raised through recapitalisation bonds, while the banks themselves will raise another Rs 58,000 crore from share sales. Nomura calls the plan a "game-changer", whereas Morgan Stanley calls it a good allocation of capital as it provides higher amounts of capital to banks with weaker capital and profitability.
It said the average core capitalisation for the state banks would be likely to reflect a cumulative increase of around 140 basis points.
Another challenge for banks is the new accounting standards (Ind-AS 109) which could come into effect from the fiscal beginning April 1, 2018. Indian Bank, Syndicate Bank and Punjab National Bank were down more than 5 per cent, whereas Andhra Bank, Canara Bank, Bank of Baroda, SBI and Union Bank were down by 3 to 4 per cent. The GST for August was recorded as Rs 93,141 crore.