Finance Minister set to make 'major' announcement — banks recapitalisation on cards?

Finance Minister Arun Jaitley will make a major announcement on Tuesday evening, possibly in connection with the recapitalisation plans for public sector banks, sources have told CNBC-TV18.

At a press conference scheduled for 4pm, the minister is likely to decide the plan for increasing capital to the weak balance sheets of banks including United Bank of India, UCO bank, Corporation bank, Allahabad Bank, Indian Overseas Bank, and Dena Bank, among other capital starved banks as the industry suffers from a decade-low credit growth at around 6 percent.

According to sources, the minister may announce recap bonds (not G-Secs) which would be sold to banks that can then be converted into equity after a certain period. Such bonds may not be accounted as fiscal deficit, similar to what was used in the 1990s issued as oil and the fertilizer bonds.

Finance ministry secretaries are likely to be present at the announcement. This comes after several meetings between the ministry and the Prime Minister over the past few months on supporting banks while they are burdened with worsening of the bad loan mess.

The estimated capital shortfall by financial year 2019 is placed at about Rs 1.9 lakh crore for all banks, excluding State Bank of India, the country's largest lender.

As per the Indradhanush plan two years ago, government would inject Rs 70,000 crore into public sector banks for a period of four years, of which Rs 20,000 crore is left for the two years ending March 2018 and March 2019.