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Banks are headed for Rs 15,000 crore loss; why recapitalisation math may need a rework

Continuing surge in the benchmark bond yields, which rose as much as 67 bps in the third quarter, will leave banks with a big hole in their treasury portfolios and result in mark-to-market (MTM) losses of Rs 15,500 crore for the December quarter alone, warns a report by ICRA.

Continuing surge in the benchmark bond yields, which rose as much as 67 bps in the third quarter, will leave banks with a big hole in their treasury portfolios. (Image: Reuters)

Continuing surge in the benchmark bond yields, which rose as much as 67 bps in the third quarter, will leave

banks with a big hole in their treasury portfolios and result in mark-to-market (MTM) losses of Rs 15,500 crore for the December quarter alone, warns a report by ICRA, PTI reported.

As much as 80% of this over Rs 15,000-crore dent is slated to be absorbed by state-run lenders, further

eroding their core capital, and the government may have to rework its recapitalisation math because of it. In the H1 of FY18, state-run banks had a pre-tax loss of Rs 5,624 crore and 80% of the projected loss of Rs 15,000 crore will be borne by them, the report said.

The government on Wednesday approved a capital infusion of Rs 7,577 crore in six weak public sector banks (PSBs) as part of its Indradhanush bank recapitalisation plan to boost their capital adequacy ratio. All the six banks are those banks that been put under Reserve Bank of India’s watch for high non-performing assets (NPA). These banks are Bank of India, IDBI Bank, Central Bank of India, Dena Bank, Bank of Maharashtra and UCO Bank.

Under the Indradhanush Plan, the government allocated Rs 70,000 crore for four years — Rs 25,000 crore each for FY 15-16 and 16-17 and Rs 10,000 crore each for 17-18 and 18-19. Lenders, which will receive capital through the preferential issue of shares, include Bank of India, IDBI Bank and UCO Bank.

Introduced in 2015, the Indradhanush plan was meant to infuse Rs 70,000 crore in state-run banks over four years to meet their capital requirement in line with global risk norms, known as Basel-III. As the bad loans situation in the country is getting bad to worse, the government in a major step to bring in reforms in the ailing banking system, approved an unprecedented Rs 2.11 lakh crore for recapitalisation of banks over the next two years in a bid to clean banks’ books and revive investment in a slowing economy.

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