Centre mulls additional capital infusion of up to Rs 300 billion in PSBs

Illustration: Ajay Mohanty

The government is considering additional capital infusion of up to Rs 300 billion in public sector banks as they have been unable to raise required funds from the markets, sources said.

As part of the capital infusion plan announced by the Finance Ministry in October 2017, the government envisaged that public sector banks (PSBs) would raise Rs 580 billion from the stock markets by March 2019 to meet Basel III norms.

However, due to subdued market conditions, banks have been unable to raise enough funds from the markets so far.

In addition, non-performing assets of many banks have seen a spurt in the first two-quarters of this fiscal, putting stress on their bottomlines.

However, the banks have got a breather in respect of Capital Conservation Buffer (CCB), a part of Basel III norms. The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 370 billion in the hands of banks.

Despite this relaxation, PSBs need more funds to meet global capital norms called Basel III as the RBI has retained the capital to risk weighted assets ratio (CRAR) at 9 per cent, sources said, adding, the shortfall could be around Rs 300 trillion.

However, sources said the matter is being considered by the government and the final decision is expected in the next few weeks.

The government had decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth. This entailed mobilisation of capital to the tune of about Rs 2.11 trillion over the next two years -- through budgetary provisions of Rs 181 billion, recapitalisation bonds of Rs 1.35 trillion, and the balance through raising of capital by banks from the market while diluting government equity estimated at Rs 580 billion.

As per this plan, the remaining capital infusion is about Rs 420 billion.

Earlier this year, the government pumped in Rs 113.36 billion into five PSBs -- PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank -- to improve their financial health.

PNB, hit by the Nirav Modi scam, got the highest amount of Rs 28.16 billion, while Allahabad Bank received Rs 17.90 billion. Andhra Bank got capital support of Rs 20.19 billion, Indian Overseas Bank Rs 21.57 billion and Corporation Bank Rs 25.55 billion.

Subsequently, PNB board approved capital infusion of Rs 5,431 cto meet the capital requirement.

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