Govt to infuse Rs 41,000 cr more into weak PSU banks

The government will infuse additional Rs 41,000 crore into cash-starved public sector banks (PSBs), as the recapitalisation is expected to enhance the lending capacity of state-owned banks.

The government's capital support comes at a time when banks were unable to raise adequate resources from the equity markets. Banks were able to mobilise only a meagre Rs 24,400 crore as against a target of Rs 58,000 crore, according to official data.

The additional money will help some of the banks to come out of the Reserve Bank of India's prompt corrective action (PCA) framework. The total recapitalisation outlay will now be enhanced to Rs 1,06,000 crore from Rs 65,000 crore during the financial year helping the PSBs to restore its lending activities.

This is in addition to the Rs 2.11 lakh crore bailout package announced by the government in October last year.

"The government will infuse Rs 83,000 crore in the public sector banks in the remaining part of the current fiscal. Some of the PSBs will be able to come out of the PCA post infusion of fresh capital," finance minister Arun Jaitley said in a press conference in Delhi. The government has already infused Rs 23,000 crore into various PSBs.

The enhanced provision is aimed at meeting regulatory capital norms, providing capital to better-performing PCA banks to achieve the statutory capital buffers and bring down their bad loans to 6% of their advances. It is also expected to strengthen amalgamating banks by providing regulatory and growth capital.

Rajnish Kumar, chairman, State Bank of India, told DNA Money, "The additional infusion of Rs 41,000 crore is an attempt by the government to pull out the banks from PCA. It will help restore the lending activities of the public sector banks and improve the capital position of the banks.

Earlier in the day in the Lok Sabha, the government presented the second Supplementary Demands for Grants for 2018-19 for gross additional expenditure of Rs 85,948.86 crore, including Rs 41,000 crore for recapitalisation of the PSBs which were hit due to increasing bad loans. At present, 11 banks are under the PCA framework which prohibits them from further lending.

Jaitley said recognition of NPAs in the PSBs is complete, and the "downslide in NPA will now commence".

Rajiv Kumar, secretary, Department of Financial Services, said the NPA recognition is complete, recapitalisation is in full swing, and recovery is also in full swing.

"The recovery in the first half of the financial year was Rs 60,726 crore and this trend is likely to continue," Kumar said, adding that the banks' credit risk-weighted asset to gross advances has also decreased from 80.26% in September 2017 to 71.2% in September 2018, which also shows the quality of asset is improving.

According to him, three more weak banks which would have migrated to the PCA framework will now be provided capital so that their base can be strengthened.

"We have decided to provide capital to 4-5 banks depending on their performance to facilitate them to meet 10.875% capital, which is the highest prescribed capital, as of March 31, 2019, and also bring down their net NPA to 6%, which is the regulatory norm as on date," Kumar said.

However, a few PSBs such as State Bank of India, Bank of Baroda, Indian Bank and Vijaya Bank do not need capital this fiscal as they have already maintained the minimum prescribed regulatory capital.

"They are in a very sound state," he said.

Meanwhile, the government has recently announced merger of Bank of Baroda, Vijaya Bank and Dena Bank.

Kumar said the amalgamated entities after the merger would also be further equipped because it will become the second or third largest bank, hence will also need additional funding.

In 2015, the government has announced a bailout package of Rs 70,000 crore and another Rs 2.11 lakh crore in 2017.

"Banks were not able to raise budgeted capital from markets under the originally envisaged recapitalisation plan of Rs 2.11 lakh crore, the announcement of additional Rs 41,000 crore recapitalisation bonds is positive as it will address the capital requirements of public sector banks said, Anil Gupta, VP & sector head -- financial sector ratings, Icra said.

"The additional capital infusion is higher than our expectations that the government will not upsize the budgeted capital of Rs 65,000 crore for PSB during FY2019," Gupta said, adding that based on current PCA criteria, there can be a relaxation in return on asset criteria, as despite capital infusion and a reduction in net NPAs, PCA banks are expected to report losses in FY2019.

"We expect the credit growth to improve with better credit flow to MSMEs as well as to NBFCs through their portfolio buyouts by banks," he said.