Breather! PSBs to get Rs 41,000 cr extra capital this fiscal

By: |
Published: December 21, 2018 2:55:41 AM

Jaitley said as much as Rs 83,000 crore will be released to PSBs in the rest of the fiscal, as bonds worth roughly Rs 23,000 crore were already been provided to them.

Breather! PSBs to get Rs 41,000 cr extra capital this fiscal

The government would infuse Rs 41,000 crore more into public sector banks (PSBs) in the current fiscal, over and above the budgeted Rs 65,000 crore, finance minister Arun Jaitley said on Thursday. The crucial move could enable 4-5 banks, including Bank of India and United Bank, to come out of the central bank’s prompt corrective action (PCA) framework in the coming months.

Financial services secretary Rajiv Kumar expressed confidence that higher infusion will also help roughly three PSBs, including fraud-hit Punjab National Bank, avoid being drawn into the PCA framework due to weak financial positions.

The entire infusion will also be in the form of recap bonds.

Jaitley said as much as Rs 83,000 crore will be released to PSBs in the rest of the fiscal, as bonds worth roughly Rs 23,000 crore were already been provided to them.

The government on Thursday placed in Parliament its supplementary demand for the extra infusion.

While the government hasn’t named the banks that would benefit as the assessment of their performance is still on, the stressed banks that could potentially get out of the PCA framework with higher infusion also include Dena Bank (after its merger with Bank of Baroda and Vijaya Bank), Bank of Maharashtra and IDBI Bank (following the acquisition of a majority stake by LIC).

Jaitley announced that the process of recognising restructured standard assets as non-performing assets (NPAs) by PSBs, which was initiated with the Asset Quality Review in 2015, is almost over, with such assets having declined from a peak of 7% (of advances) in March 2015 to just 0.59% in September 2018.

The government’s decision to step up infusion could make the task of new Reserve Bank of India (RBI) governor Shaktikanta Das somewhat easier, as the RBI has in recent months strongly resisted the Centre’s plea to ease its “stringent” capital adequacy norms and align them with the more liberal Basel norms.

Higher infusion by the government will enable PSBs to meet regulatory capital norms, apart from improving their ability to lend (including to MSMEs) and spur economic growth ahead of the crucial 2019 polls, especially when non-bank lenders are facing a liquidity crunch. It was also necessitated by the fact that PSBs–which were supposed to raise as much as Rs 58,000 crore from the stock markets in two years through FY19 to stay adequately capitalised–have been able to mobilise only Rs 24,400 crore so far, given the unfavourable conditions. Also,a spike in NPAs of some PSBs this fiscal has dented their balance sheets.

However, banks have got a breather in respect of the extension of a deadline for the complete roll-out of the capital conservation buffer rule by a year.

However, as FE had pointed out in February, if PSBs were still in bad shape after the government had pumped in Rs 1.2 lakh crore between FY11 and FY17 and another Rs 2.1 lakh crore over 2 years through FY19 (excluding today’s move), the country couldn’t afford such unwise bailouts. In fact, from a 43% share when Narendra Modi came to power, the share of PSBs in the total market capitalisation of all banks had shrunk to just 25% then.

The government will now provide capital to better-performing PCA Banks to achieve the required 9% capital-to-risk-weighted asset ratio (CRAR) and another 1.875% capital conservation buffer (on top of the CRAR). Also, it will help some of them achieve the 6% net NPA threshold, thus facilitating their exit from the PCA. Similarly, the banks that are in the process of amalgamation (BoB, Vijaya Bank and Dena Bank) will get growth capital, said the . As many as 11 of the 21 state-run banks are under the PCA framework.

As part of the already-approved Rs 2.11-lakh crore recapitalisation move, the government was to issue recap bonds worth a total of Rs 1,45,000 crore over two years through 2018-19 and around Rs 58,000 crore was to be mobilised through the dilution of government equity in various PSBs. Apart from the bonds, the government had provided budgetary support of Rs 10,000 crore to PSBs in 2017-18 under the Indradhanush plan.

The financial services secretary said gross NPAs of PSBs have started declining after peaking in March 2018, having recorded a drop of Rs 23,860 crore in the first half of FY19. Non-NPA accounts overdue by 31 to 90 days (Special Mention Accounts 1 & 2) of PSBs have declined by 61% over five successive quarters from Rs 2.25 lakh crore as of June 2017 to Rs 0.87 lakh crore by September 2018, substantially paring down credit at risk. Their provision coverage ratio has also jumped from 46.04% in March 2015 to 66.85% as of September 2018. Also, a record recovery of Rs 60,726 crore has been effected by PSBs in H1FY19, more than double the level a year before.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop