Bank recapitalisation plan: PSU banks set to get ₹42,000 crore over next 4 months2 min read . Updated: 27 Nov 2018, 10:16 AM IST
State Bank of India (SBI) and Punjab National Bank (PNB) are likely to excluded from this tranche of the PSU bank recapitalisation plan
New Delhi: Public sector banks are set to receive ₹ 42,000 crore in capital infusion over the next four months as part of the ₹ 2.11 trillion PSU bank capitalisation plan announced by the Union government last year, said a senior finance ministry official. Big lenders such as State Bank of India (SBI) and Punjab National Bank (PNB) may however be excluded from this exercise, said the official, requesting anonymity. The next tranche of infusion will happen next month, said the official.
The development comes at a time when the Reserve Bank of India (RBI) has partially relaxed rules relating to implementation of Basel III norms. Local banks will receive an additional one year to meet the capital conservation buffer requirements, according to a decision taken at the central bank’s board meeting last week. Banks will have to meet the capital conservation buffer norms under Basel III by 31 March 2020.
The rule is designed to ensure that banks build up capital buffers at times when credit is growing, which can be drawn down when losses are incurred during a stressed period. The capital conservation buffer in the form of common equity is being uniformly phased over a period of four years, or 0.625% a year, starting 1 January 2016.
The extension of the deadline will free up capital of these banks and enable them to lend more than ₹ 3.5 trillion.
“We will infuse the next tranche of recapitalisation by mid-December. Close to ₹ 42,000 crore remain to be infused as capital in public sector banks in the current financial year," the official added.
Of the ₹ 2.11 trillion bank recapitalisation plan, ₹ 1.35 trillion was from the sale of so-called recapitalisation bonds. The remaining ₹ 76,000 crore was through budgetary allocation and fundraising from the markets.
PSU banks have been struggling with high levels of bad debts, as well as huge losses, forcing the government to capitalize them to ensure they meet the prescribed capital norms.
However, fiscal constraints are preventing capital infusion over and above what was budgeted.
The government is relying on massive recoveries from a few cases that are in the last stages of resolution under the insolvency and bankruptcy code. It hopes to improve the balance sheets of banks and enable them to turn profitable, thereby reducing their dependency on the government.
The capital infusion will also help at least five banks come out of the prompt corrective action framework of RBI, said the official. Eleven of the 21 PSU banks are under the RBI’s PCA framework. The RBI board has asked the board of financial supervision to reconsider the PCA framework that places lending restriction on banks.
PTI contributed to this story.