Govt staff may be asked for invest part of 7th pay commission hike in bank bonds

Indian Military Veterans

New Delhi: Government is looking at a scheme for encouraging its employees to invest part of their 7th pay commission salary hike in a fund which would be used for recapitalisation of state-owned banks.

High income government official, according to officials, could be roped in to invest in the fund by offering lucrative incentives like tax break or higher return.

As per the proposal, higher income government staff from the rank of section officer may be asked to shell out 50% of increased salary towards bank capitalisation bonds, the officials said.

Top officials of the finance ministry had preliminary discussion over the issue last week, officials said. However, no decision has been taken yet, they said, adding that Committee of Secretaries is looking into the matter and various alternatives are being considered.

This proposal is being considered to find more resources for recapitalisation of public sector banks which are saddled with gross non-performing assets (NPAs) of Rs.3.61 trillion at the end of December 2015, as against Rs.39,859 crore in the private sector.

Gross NPA ratio as percentage of advances rose to 7.30% while for private banks, it stood at 2.36% as of December-end.

RBI has asked public sector banks to clean up balancesheets by March next year. Cleaning to books would require additional capital infusion than what has been envisage in the ‘Indradhanush’.

Last year, the government had announced a revamp plan ‘Indradhanush’ to infuse Rs.70,000 crore in state-owned banks over four years, while they will have to raise a further Rs.1.1 trillion from markets to meet their capital requirements in line with global risk norms Basel-III. In line with the blueprint, PSU banks were given Rs.25,000 crore in the last fiscal and an equal amount is planned for the current fiscal.

As per the plan, Rs.10,000 crore each would be infused in 2017-18 and 2018-19. It is believed that the government provided as much as Rs.70,000 crore in the Union Budget 2016-17 for implementation of Seventh Pay Commission for 47 lakh government employees and 52 lakh pensioners.

While the Budget did not provide an explicit overall provision number, the government had said the 7th Pay Commission hike has been built in as interim allocation for different ministries and Budget numbers were credible.

Implementation of the pay commission report in toto is to cost the government Rs.1.02 lakh crore.