The eleven weak banks are currently under the RBI’s Prompt Corrective Action (PCA). This plan kicks in when banks breach regulatory norms on issues such as minimum capital, amount of non-performing assets and return on assets.
Bank recapitalization: With an aim to provide fillip for Public Sector Banks (PSBs) in the country, the Modi government will infuse a total of around Rs 1 lakh crore by March-end. This staggering amount comprises of Rs 80,000 crore which will be infused through recapitalisation bonds. Apart from this Rs 8,139 crore will be infused through gross budgetary support and Rs 10,312 crore of funds raised from the market. An announcement was made in this regard yesterday. The central government had come up with a reforms roadmap for these banks. It has been learnt that eleven weak banks are to be given a total of Rs 52,311 crore to maintain their minimum capital requirement. Nine strong banks will get Rs 35,828 crore.
The eleven weak banks are currently under the RBI’s Prompt Corrective Action (PCA)0. This plan kicks in when banks breach regulatory norms on issues such as minimum capital, amount of non-performing assets and return on assets. The central bank enforces these guidelines to ensure that banks do not go bust and follow prompt measures to put their house in order. IDBI Bank, which has a Gross Non Performing Assets (NPA) ratio of 24.98 per cent, will receive the highest capital infusion of Rs 10,610 crore, followed by Bank of India getting Rs 9,232 crore and State Bank of India getting Rs 8,800 crore.
“There are some decisions the government takes but there has to be an appropriate timing for that decisions… one of the objectives in supporting non-PCA banks is that these are the banks where robust lending is to take place so that they are able to support growth, lending and the economy itself. For the PCA banks, the principal object appears to be that they maintain their regulatory capital. And that is the criteria that is being followed for the IDBI. The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision,” FM Arun Jaitley said.
Last year, the central government had unveiled an unprecedented Rs 2.11 lakh crore two-year road map for strengthening NPA-hit public sector banks, which includes re-capitalisation bonds, budgetary support, and equity dilution. The capital infusion, Finance Minister Arun Jaitley said, will be accompanied by reforms to enable the state-owned banks to play major role in the financial system and give a strong push to the job-creating MSME sector.