New Delhi/Mumbai: India is preparing to infuse about 2,000 crore($290 million) into Punjab National Bank (PNB)by next week to help it meet dues on its perpetual bonds, people familiar with the matter said.

India’s third-largest state-run lender will issue preferential shares to the government, the people said, asking not to be named as the information isn’t public. This will help restore capital to the level needed to pay the coupon that’s due on 25 July, they said.

PNB needs to pay about 35 crore to cover the 8.98% annual interest on 1,500 crore worth of so-called AT1 bonds sold in July 2017.

Unless PNB gets fresh capital in time, it may be unable to make the payment because an unprecedented loan-fraud wiped out its profits and pushed the bank’s capital below mandated levels, according to the local unit of Fitch Ratings. PNB’s core tier I capital was at 5.96% as of 31 March, below the Reserve Bank of India’s minimum required 7.375%.

“A plain reading of the RBI’s rules could be interpreted as if the bank is below the minimum core tier I capital requirement, they would face restrictions on payment of coupon," said Prakash Agarwal, head—financial institutions, at India Ratings & Research, the local unit of Fitch. “The government is expected to step in."

A spokesman for Punjab National Bank said the bank will be making the coupon payments on the due date, subject to regulatory approvals. He didn’t provide any further details. Two calls made to finance ministry’s spokesman D.S. Malik were unanswered.

State-run lenders including UCO Bank, Bank of India, United Bank of India and Corporation Bank had recalled AT1 bonds earlier this year, exchange filings show. The government is recalling the bonds on concerns that loss absorption by an AT1—by way of coupon deferral, a principal write down, or conversion into common equity—could potentially have a contagion impact on the Indian financial system and hurt stability, S&P Global Ratings said in a note in March.

India Ratings had downgraded PNB’s AT1 bonds in May to A+ with a negative outlook from AA+ as capital buffers deteriorated.

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