Capital-raising plans outlined for public sector banks are adequate to meet regulatory requirements, department of financial services secretary Rajiv Kumar said. The government is also willing to infuse regulatory capital in 11 banks under prompt corrective action (PCA), depending on the business plan they submit on Friday, he said.

This comes at a time when large public sector banks like State Bank of India (SBI) posted a loss of over Rs7,700 crore in its fourth quarter (Q4) on higher provisions against bad loans. Punjab National Bank, reeling under a $2 billion scam, also reported the highest ever quarterly loss by an Indian bank—Rs13,417 crore in the January-March period.

“The capitalization amount we have worked out is sufficient. We have that with us, which is around 65,000 crore, which is the left-over of Rs2.1 lakh crore (trillion). Regulatory capital of all banks is guaranteed. No way the government can allow any banks to default. So, that capital is intact, it is budgeted, it is with us," Kumar said on the sidelines of a seminar on Pradhan Mantri Mudra Yojana in Mumbai. Banks are also looking at other ways of raising capital, he added, including sale of non-core assets and differentiated banking strategies.

In October, the government had committed to infusing Rs1.35 trillion through recapitalization bonds, apart from Rs76,000 crore through budget allocation and fund-raising from the markets, adding up to Rs2.11 trillion. However, the recent losses reported by state-run banks for FY18 have hit the capital position of these banks, with some even inching closer to minimum regulatory capital requirement of 7%.

“Through the recapitalisation plan, Rs90,000 crore of capital infusion has been done in FY2018; however, the fact that this is less than sufficient got reflected after announcement of regulatory forebearances during the first week of April 2018, which was intended to shore up their financial year-end reported capital ratios. Adjusted for regulatory forebearances allowing them to defer loss provisions by few quarters, the Tier I capital could be lower than 7% for some of these banks. The capital ratios will weaken if they don’t raise capital immediately, banks will need to provide for these losses in their subsequent quarterly results," said Karthik Srinivasan, senior vice-president & group head, financial sector ratings, Icra Ltd.

On vacancies in state-owned banks, Kumar said the government has sent the list of eligible candidates for appointment to senior management at several public sector banks. Three out of 21 state-run banks have been without a head since the beginning of this calendar year. The position at Allahabad Bank also fell vacant recently after its chief executive officer Usha Ananthasubramanian was divested of all powers. She was charged by the Central Bureau of Investigation in the Nirav Modi case. Separately, P.S. Jaykumar, CEO of Bank of Baroda and Rajiv Rishi, CEO of Central Bank of India are also due to retire this year.

Economic Times reported on 22 May that the government is considering a proposal to replace the top slots at large PSU banks with senior executives of State Bank of India.

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