NEW DELHI: The government has unveiled a Rs 70,000-crore capitalisation plan for state-run banks over four years as a first-step solution to address the issue of bad loans, which have become a drag on the economy. The capitalisation plan will begin with a Rs 25,000-crore infusion in the current fiscal year, followed by another Rs 25,000 crore in FY17 and Rs 10,000 crore each over the subsequent two years. “The bank recapitalisation plan is comprehensive. We have put in four years’ plan to push growth and tackle non-performing assets,” FM Arun Jaitley said. RBI Governor Raghuram Rajan said the allocation for the first year is adequate and that it’s a good beginning. The government sought Parliament’s nod for a net additional Rs 25,495 crore of spending in the current financial year through its first supplementary demand for grants, of which Rs 12,010 crore is for the bank capitalisation programme. In the Budget for FY16, the government had initially proposed Rs 7,940 crore for capital allocation to state-run banks. “The remaining Rs 5,000 crore would be provided in the second supplementary later this year,” the finance ministry said in a statement. In FY15, the government infused Rs 6,990 crore in nine of 27 state-run banks on the basis of their performance — return on equity and return on assets. The ministry said 40% of the Rs 25,000 crore, or Rs 10,000 crore, will be allocated to the top six lenders — State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank and IDBI Bank — to strengthen them to play a vital role in the economy. Financial Services Secretary Hasmukh Adhia said the government will infuse Rs 20,000 crore in public sector banks likely by September. “Of the total infusion, Rs 10,000 crore capital would be provided to weak banks,” he added. While experts agreed, they said the move to increase capital allocation is only a short-term measure. “Unless we make necessary changes in terms of developing the capital market and resolving issues in the infrastructure sector, we are just buying time,” said Sunil Sinha, principal economist at India Ratings. “The government does not have the capacity to put money in banks over a long period. The near- and medium-term solution is merger among weaker banks and selling non-core assets to generate revenue.” Shares of most public sector banks rose on the Bombay Stock Exchange, led by Bank of Baroda and State Bank of India, both gaining more than 5% each. The benchmark Sensex advanced 1.48%. PSBs need Rs 1.8 lakh crore of capital According to the finance ministry’s estimates, public sector banks will require Rs 1.8 lakh crore of additional capital in the next four financial years. “This is based on credit growth rate of 12% for the current year and 12-15% for the next three years, depending on the size of the bank and their growth ability,” according to the statement. The finance ministry said at present all state-run banks are adequately capitalised and meet Basel-III and Reserve Bank of India norms and they will be able to raise the remainder of Rs 1.1 lakh crore from the market because of improved valuations.