Last-leg capital infusion into banks may take shape in Q4
3 min read 23 Dec 2021, 01:13 AM ISTThe finance ministry will look into the needs of each bank, especially those still under PCA
PremiumNEW DELHI : The government proposes to recapitalize public sector banks (PSBs) which have emerged from the Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) framework and may need additional funds to strengthen their books, two officials said.
The finance ministry will finalize the last round of capital infusion for PSBs early next year and will look into the requirements of each bank, especially weak ones that are still under PCA or have recently been out, they added.
PSBs have been asked to provide their capital requirement needs after finalizing the accounts for the third quarter of FY22. Based on the requirements, the finance ministry will decide the quantum of capital for each bank.
The budget for FY22 had allocated ₹20,000 crore for bank recapitalization, but a large part of it is yet to be disbursed. It is expected to be released in Q4. Allocations for bank recapitalization may not be a priority in the budget for FY23 and lenders may be encouraged to tap the markets as the government is of the opinion that the financial health of PSBs is showing signs of improvement and they are capable of raising funds from the market, the officials said.
Queries to the finance ministry remained unanswered till press time.
The banks’ capital requirements will be reviewed in the next quarter, before infusing money to meet the regulatory needs. Special attention will be given to requests from weak banks that came out of PCA to ensure they can further strengthen their financials and begin to expand lending services, they added.
In September, RBI had removed UCO Bank and Indian Overseas Bank from the PCA framework following improvement in various parameters and a written commitment that the state-owned lenders will comply with the minimum capital norms. Now, only Central Bank of India remains under the PCA, which is triggered when lenders breach certain regulatory requirements such as return on assets, minimum capital and the quantum of non-performing assets.
Capital needs of the banks may be prioritized when the next round of capital infusion is announced. Recapitalization is expected to help the lenders progress faster on strengthening their financials.
Out of the ₹20,000 crore alloted for five public sector banks under the PCA in FY22, ₹11,500 crore was disbursed to three banks— UCO Bank, Indian Overseas Bank and Central Bank of India.
The government has infused over ₹3.15 trillion into PSBs in the 11 years through 2018-19. In FY20, ₹70,000 crore was infused to help the PSBs offer credit to the industry and to help the economy revive.
Indian banks have so far raised more than ₹37,000 crore by issuing additional tier-I bonds (AT1) in FY22. Call options for AT1 bonds worth ₹28,430 crore are due in FY22, addressing concerns on rollovers and capital ratios.
Moreover, the net profit of PSBs had surged to ₹14,012 crore in the first quarter, and further increased to ₹17,132 crore in the quarter ended September.
The combined profit of the first half of the current fiscal year is close to the total profit earned in FY21, when PSBs had raised ₹58,697 crore, the highest amount mobilized in a fiscal year.
The capital adequacy ratio (CAR) of PSBs increased to 14.3% at the end of June 2021, while the provision coverage ratio rose to an eight-year high of 84%. Most of the non-performing assets of the PSBs are now adequately provided for.
Even NPAs declined from ₹678,317 crore on 31 March 2020, to ₹616,616 crore as on 31 March 2021, according to provisional data. On an aggregate basis, state-owned banks recorded profit of ₹31,816 crore—the highest in five years, despite the 7.3% contraction in the economy in 2020-21 due to the covid-19 pandemic.
