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Rediff.com  » Business » Govt seeks special dividend to fund part of bank recapitalisation

Govt seeks special dividend to fund part of bank recapitalisation

By Arup Roychoudhury
November 15, 2017 16:38 IST
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Provided talks on the matter are fruitful, the dividend payout will made during the current RBI financial year ending June 30, 2018.

The government has sought a special dividend from the Reserve Bank of India (RBI) to fund a part of its Rs 2.11-lakh crore plan to recapitalise public sector banks.

“The RBI has been asked if it can pay a special dividend, apart from the yearly surplus that it pays the Centre.

 

"This dividend, if agreed to by the central bank, will be used only for bank recapitalisation,” said an official aware of the deliberations.

Provided talks on the matter are fruitful, the dividend payout will made during the current RBI financial year ending June 30, 2018.

“It remains to be seen whether the central bank will have room for a special dividend,” the official said.

The RBI had for its financial year 2016-17 transferred Rs 30,659 crore of its surplus to the government, less than half of the Rs 65,876 crore it had handed over a year earlier.

The government had in the Budget for 2017-18 accounted for a dividend of Rs 74,901 crore from the RBI and nationalised banks.

Economic Affairs secretary Subhash Garg had said in August that the RBI’s share was expected to be Rs 58,000 crore.

According to him, the RBI had Rs 14,000 crore more in surplus from the previous financial year for provisioning.

He had said the Centre would ask the RBI to pay some of that amount as well.

The official quoted above said the matter, which was separate from the Centre’s request for a special dividend, was still being pursued.

News reports have suggested that the RBI will participate in the Rs 1.35-lakh crore bond programme that is a component of the bank recapitalisation plan.

Another official said the proposal was not being pursued.

The government may issue the first tranche of the bank recapitalisation bonds around the first week of December.

This tranche could comprise bonds with 10-year tenure and an interest rate of 7 per cent.

The quantum of the first tranche has not yet been decided.

Senior finance ministry officials have said these bonds will be front-loaded over the next three or four quarters.

In October, the government announced the capital infusion plan for state-owned banks.

Out of the total commitment, Rs 1.35-lakh crore will come from the sale of bonds and the balance Rs 76,000 crore will be through budgetary allocation and fundraising from the markets.

The bank recapitalisation package marks a sharp increase over the current budgetary allocation.

Under the Indradhanush plan, the government has allocated Rs 20,000 crore towards bank recapitalisation over the current and next fiscal years.

Photograph: Shailesh Andrade/Reuters

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Arup Roychoudhury in New Delhi
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