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Govt could ask CPSEs to invest into proposed Rs 1.35 lakh cr recapitalisation bonds

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The government could ask cash-rich central public sector enterprises (CPSEs) to invest in the Rs 1.35 lakh crore bonds to recapitalise public banks.

In October this year, the government had announced recapitalisation package of Rs 2.11 lakh crore for banks. Of the total amount, Rs 1.35 lakh crore is to come from recapitalisation bonds and rest Rs 76,000 crore from budgetary support and stake sale in banks.

In case of recapitalisation, if banks participate then government will issue bonds that the banks will buy. The funds raised by the government will then be infused as capital into the banks.

In case where the banks don't participate, banks will get cash in lieu of equity, the report said.

According to an earlier report, state-owned Life Insurance Corporation could also be roped into participate in the recapitalisation process.

By the way of process, LIC could increase its holding in the public sector banks. LIC could also participate in a non-operating holding company structure (NOHC) where the government could transfer its holding in various public companies.

This NOHC will then issue recapitalistaion bonds worth Rs 1.35 lakh crore. Nature of these bonds is yet to be decided by the government.

This won't be the first time when LIC would invest into PSBs. LIC, in the past, has pumped capital in public banks via share allotment and QIPs.