Weak banks to get most recap funds

The government on Wednesday announced a Rs 88,139 crore recapitalisation plan for 20 public sector banks (PSBs), with a bulk of it being directed at weaker banks with a lower capital ratio and higher non-performing assets.

Banks, on their part, have to reduce their corporate lending and concentrate on core competencies.

The recapitalisation bonds will account for Rs 80,000 crore while Rs 8,139 crore would be budgetary support. However, the government has not specified who would issue the bonds -- whether it would be the government or some agency of the government.

The budgetary support of Rs 8,139 crore would come from the Rs 10,000 crore budgeted for 2017-18 left under Indradhanush plan. Out of it, Rs 1,861 crore were infused in IDBI Bank in August 2017.

The bonds will be issued this financial year. The recapitalisation will help banks absorb the higher provisions (capital buffers) for bad loans.

In lieu of the government move, the PSBs need to identify non-core assets to monetise. They will have to minimise their exposure to big corporate loans to 10% in a consortium, while all loans above Rs 250 crore will undergo special monitoring. Banks have to get into responsible banking by concentrating on core strengths, with each bank being asked to adopt a policy that will exploit its core strengths.

Banks where the prompt corrective action (PCA) was implemented will get a capital infusion of Rs 52,311 crore while the banks which not have any corrective action will receive Rs 35,828 crore. The Rs 80,000 crore capital will come through non-SLR bonds which government will issue to the banks in return for their equity. The banks will have to raise these bonds from the market at a coupon rate, which will be announced by the government later.

IDBI Bank, which is under a prompt corrective action (PCA), is getting the highest recapitalisation at Rs 10,610 crore, followed by Bank of India at Rs 9,232 crore, UCO Bank has Rs 6,507 crore. The non-PCA banks -- State Bank of India has got Rs 8,800 crore, Bank of Baroda Rs 5,375 crore and Punjab National Bank Rs 5,473 crore.

A senior treasury head of a public sector bank said, "The government has not clarified if the bonds would have to be mark to market or the coupon rate. The market was expecting to get a clarity on this the only clarity that the government gave was that it would be non-SLR bonds."

Rating agency Icra said, "The current capital allocation is based on the capital ratios and the NPA levels of individual banks and ability of these banks to absorb credit losses from their operations. Certain banks have received much higher capital in relation to the March 31, 2018, regulatory requirements, which possibly reflects the likelihood of much higher credit provisioning these banks will require on their NPAs during the second half of 2017-18."

"While the current capital allocation is higher for weaker banks, the next round of recapitalisation (Rs 64,861 crore in 2018-19) could be based on the performance of the banks, with stronger banks receiving higher share of capital," the Icra report said.

R P Marathe, MD & CEO, Bank of Maharashtra, said, "The bank is confident of a steady recovery. The fresh capital with government's support and fund raising through Qualified Institutional Placement (QIP) will help in strengthening our balance sheet and give a boost to our core operations. We have developed a business revival plan to improve the asset quality and efficiency."