Corp. Bk, Allah. Bk, PNB, UCO Bk, Sy. Bk, IOB, CBI, UBI, United Bk, Andhra Bk, BOI & BOM to get Rs.48,239 crore capital infusion

The Government has approved Rs.48,239 crore in capital for 12 Public Sector Banks, including Allahabad Bank, Corporation Bank and Punjab National Bank, taking its total infusion into state-run lenders to almost Rs.1 lakh crore so far this fiscal, financial services secretary Rajeev Kumar said on Wednesday.

The move is part of the government’s proposed Rs.1.06 lakh crore infusion into capital starved PSBs in FY 2018-19 against Rs.88,139 crore a year before.

The entire infusion will be through recapitalisation bonds. It is expected to help PNB, Union Bank, Andhra Bank and Syndicate Bank avoid falling into the Prompt Corrective Action (PCA) framework, apart from bolstering the capital base of various PSBs to facilitate greater lending to sensitive sectors like MSMEs and agriculture ahead of polls.

Similarly, higher capital could enable PCA banks such as Allahabad Bank and Corporation Bank to get out of the corrective regime. Allahabad Bank’s net non-performing assets stood at 7.7% and Corporation Bank’s net non-performing assets touched 11.47% as of December 2018. But with the large infusion, the ratio could be improved to 6% (net NPA above 6% is one of the triggers for PCA action) or below, officials said.

PSBs that have already exited the PCA (Bank of India and Bank of Maharashtra) will receive capital to avoid getting into it again, while some other weak banks like Central Bank of India, United Bank of India, UCO Bank and Indian Overseas Bank will get recap bonds to just meet regulatory norms. In December 2018, the government had announced that it would provide an additional Rs.41,000 crore capital to PSBs this fiscal, over and above the budgeted Rs.65,000 crore.

However, despite the infusion of around Rs.2.45 lakh crore since 2014-15, the share of state-run banks in the market capitalisation of all banks has dropped sharply in the current NDA regime from around 42% in 2014 to just around 26% now. Of course, without the government support, many of the bad-loan-hit banks would have fallen short of meeting their regulatory capital requirement. However, this has intensified calls for privatising weak PSBs and not just getting LIC to bail out some of them (LIC’s recently completely acquisition of 51% stake in IDBI Bank, saving the government the need to further capitalise the debt-laden lender this fiscal).

In the latest round, Corporation Bank led the pack in getting recapitalisation bonds worth Rs.9,086 crore, followed by Allahabad Bank Rs.6,896 crore, PNB Rs.5,908 crore, Bank of India Rs.4,638 crore, Union Bank Rs.4,112 crore, IOB Rs.3,806 crore, UCO Bank Rs.3,330 crore, Andhra Bank Rs.3,256 crore, United Bank Rs.2,839 crore, Central Bank Rs.2,560 crore, Syndicate Bank Rs.1,603 crore and Bank of Maharashtra Rs.205 crore.

The finance ministry believes that the worst is over for the state-run banks and the recent improvement in their performance will be further bolstered by the infusion. Gross NPA ratio in the banking system is expected to ease for the first time in almost a decade to 10.3% by the end of 2018-19 under the baseline scenario, from as much as 11.2% a year ago, according to the latest RBI projection. This is mainly due to easing concerns about the NPAs of state-run banks, which account for an overwhelmingly large share of these bad loans.

As such, NPAs of PSBs dropped Rs.23,860 crore in the first half of the current fiscal from a peak of Rs.9.62 lakh crore in March 2018, in a sign that the worst is behind, the financial services secretary had said.