‘Six PSBs, including PNB, may get capital infusion of Rs 80 billion’

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New Delhi, Jul 17: Around six public sector banks (PSBs), including the Punjab National Bank (PNB) that has been hit by the Nirav Modi scam, might get a capital infusion of about Rs 80 billion from the government, a finance ministry official said. These banks are likely to fall short of regulatory capital requirements.
The official said that some banks that have issued additional tier 1 capital bonds, with the interest payments being due, would not be allowed to make the required payments if they didn’t meet the regulatory capital norms. The government, however, cannot allow PSBs to default on such payments as that would impact their rating, the official added.
Another unnamed official told the financial daily that some banks that have been placed under the Reserve Bank of India’s prompt corrective action (PCA) framework would also benefit from this round of capital infusion.
Citing a recent report by ratings company ICRA, the financial daily reported that out of the 15 PSBs that have declared their results for financial year 2018, only five reported a tier 1 capital position that was close to the minimum regulatory requirement of 7 per cent.
In May this year, the finance ministry had begun the process of ascertaining the amount of capital to be infused into PSBs this financial year as a part of the second round of recapitalisation. The department of financial services had written to PSBs seeking an update on the implementation of the reforms agenda set out by the Centre, which was an important parameter for allocating funds to banks.
“We have asked public sector banks to update us about the implementation of the 30-point reforms agenda by May 11,” a senior finance ministry official had said back then.
In January this year, the Centre announced a Rs 881-billion capital infusion in 20 PSBs, with a major chunk flowing into the weaker banks to meet their capital adequacy requirement.
As reported before, under the recapitalisation plan, eleven banks facing prompt corrective action by the RBI were to receive Rs 523 billion in FY18. The comparatively healthier banks were to receive Rs 358 billion through the recapitalisation bonds.
The Rs 1.35-trillion bank recapitalisation bonds, which were to be issued over FY18 and the current financial year, are part of a larger Rs 2.11-trillion bank recapitalisation programme. Apart from the recapitalisation bonds, the Centre was slated to cough up a total of Rs 180 billion in the past and the current year, while the remaining Rs 580 billion was to be mobilised from the market by the banks.
In October last year, the government unveiled a Rs 2.11-trillion support for PSBs, struggling with mounting bad loans, in order to spur “genuine” infrastructure lending for upcoming mega projects.