He said that the Public Sector Banks (PSBs) will get Rs 88,000 crore infusion from the Government, but they have to become more responsible as per the norms laid down by for them.
Whole-time directors of PSBs would be assigned theme-wise reforms for implementation and their performance in this regard would be evaluated by the respective bank's board.
The government allocated Rs 8,800 crore for State Bank of India, the country's largest lender, and Rs 5,473 crore for Punjab National Bank. Additionally, Rs 18,000 crore was proposed to be issued through Budgetary allocation and balance of Rs 58,000 crore to be raised by banks through capital markets.
While the government has allocated Rs 88,139 crore for bank recapitalisation (predominantly through recap bonds), Rs 52,311 crore will be allocated to 11 PSU banks that are now under Prompt Corrective Action.
"All public sector banks will be adequately capitalised and enabled to serve people and support inclusive growth", said India's top banking bureaucrat, Rajeev Kumar.
The recapitalisation would be dependent on performance and reforms, Kumar said.
"This capital will help us grow our loan book mainly in retail, agriculture and MSME sector, and meet regulatory capital requirements".
But the government on Wednesday said lenders must implement a series of reforms to get the funds, including improving their due diligence, allowing specialised monitoring for loans above 2.5 billion rupees, and limiting the number of lenders that can group together to dole out loans.
This capital infusion is a step in the positive direction, as it will fund their growth plans and would cushion these banks to provide for NPA provision.
Analysts had said mandating reforms would be critical to prevent banks from engaging in the same indiscriminate lending that led to the current problems. "We inherited a very major problem and therefore, we have been involved in finding a solution to that problem", he said. "It is the government's responsibility to keep state-run banks in good health and ensure they follow the highest standards of corporate governance", Jaitley said.
He said the government will not interfere in commercial decisions taken by banks so that they are independent but they have to undertake reforms and do "prudent and clean" lending.
Oriental Bank of Commerce would get Rs 3,571 crore; Dena Bank - Rs 3,045 crore; Bank of Maharashtra - Rs 3,173 crore; United Bank of India - Rs 2,634 crore; Corporation Ban Rs 2,187 crore; Syndicate Bank - Rs 2,839 crore; Andhra Bank - Rs 1,890 crore; Allahabad Bank - Rs 1,500 crore, Punjab and Sind Bank - Rs 785 crore.
These bonds will not have any statutory liquidity ratio and have a tenure of 10-15 years, economic affairs secretary S.C. Garg told reporters.