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Cabinet approves Recapitalisation of Export-Import Bank of India

Exim Bank is the principal export credit agency for India. The infusion of capital into Exim Bank will enable it to augment capital adequacy and support Indian exports with enhanced ability.

Jan 16, 2019 17:31 IST
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The Union Cabinet, chaired by Prime Minister Narendra Modi, on January 16, 2019 approved the recapitalisation of the Export-Import Bank of India (EXIM Bank).

The Cabinet also approved an increase in the authorized capital of EXIM Bank from Rs 10,000 crore to Rs. 20,000 crore.

How recapitalisation of EXIM Bank will be carried out?

The Government will issue the Recapitalization Bonds to the tune of Rs 6000 crore for capital infusion in the EXIM Bank.

The equity will be infused in two tranches. First tranche will be of Rs 4,500 crore in FY 2018-19, and then of Rs 1,500 crore in FY 2019-20.

The recapitalisation bonds will be on the lines issued to Public Sector Banks.

Impact

Exim Bank is the principal export credit agency for India. The infusion of capital into Exim Bank will enable it to augment capital adequacy and support Indian exports with enhanced ability.

The infusion will also give a boost to anticipate new initiatives like supporting Indian textile industries, changes in Concessional Finance Scheme (CFS), likelihood of new LoCs in future in view of India's active foreign policy.

EXIM Bank

Export Import Bank of India or EXIM Bank is the premier agency in India in the arena of export financing.

It was established in the year 1982 under an act of Parliament in order to make Indian companies get requisite credit facilities for exporting their products to different countries of the world.

The bank steadily grew into an organisation that does not only support export from the country, but also encourages overseas investment, pre-shipment and post-shipment finance, finance for developing business cycle for Indian companies, etc.

The Bank is regulated by the Reserve Bank of India (RBI).

What is Recapitalisation?

Simply put, recapitalisation of banks mean adding capital to Public Sector Undertaking Banks. As owners of PSUs government can provide capital to these banks. It is different from loan because a loan has to be repaid whereas recapitalisation injects money without incurring any liability.

Why Recapitalisation?

• With over 10 trillion stressed assets and 7.7 trillion Non-Performing Assets, Indian banks are unable to give fresh loans.

• Most Public Sector Banks are in need of Capital plus, the credit growth has been slow moving for a while for want of big corporate loans. 

• Banks have been unable to lend loans to big corporate houses due to bank’s weak capital positioning which limited its capability to lend to big corporate houses.

What could change after Recapitalisation?

• Lending Capacity of Banks would increase.

• This could also boost India’s economy and improve private sector investment.

• Big expansion in supply of money and this could also mean banks can lend lower interest rates.

• It might increase India’s fiscal deficit that is government's total expenditures may exceed the revenue that it generates (apart from money from borrowings).

• Experts suggest that banks have much wider requirement than the budgetary allocation.  According to Moody’s Investors Service, 11 big state-owned banks will require additional capital of Rs 70,000 - 95,000 crore, against the Rs 20,000 crore budgeted until March 2019.

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