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Govt approves ₹48239 cr recap to 12 PSBs

Govt comes to the rescue of 12 PSBs, to pump in Rs.48,239 cr

Corporation Bank gets the highest infusion of Rs.9,086 crore while Bank of Maharashtra gets the lowest at Rs.205 crore.

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The government on February 20, announced final recapitalisation tranche amount of Rs.48,239 crore for as many as 12 public sector banks, in a bid to take them out of Reserve Bank of India’s (RBI) prompt corrective action framework.

The 12 banks are Allahabad Bank, Corporation Bank, Bank of India, Bank of Maharashtra, Punjab National Bank, Union Bank, Andhra Bank, Syndicate Bank, Central Bank, United Bank, UCO Bank and IOB.

In a tweet, Rajeev Kumar, secretary, Department of Financial Services said that the banks would receive the capital to “equip better performing PCA banks to be above regulatory capital threshold, to help banks that are out of PCA to remain so and equip non PCA banks to stay above regulatory norms of PCA”.

As per the recapitalisation drive, the government has categorised the banks in three categories with respect to their capital position as against that required by the RBI.

 

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The government had initiated a mega recapitalisation drive in October, 2017 announcing infusion of Rs 2.11 lakh crore in banks by way of capital. Of this Rs 1.35 lakh crore was through recap bonds, Rs 18,000 crore via budgetary support and rest as to be raised via market operations.

As of December, 2018 government has infused Rs 51,533 crore via budgetary allocation and recap bonds.

Lending ability of as many as 11 PSBs was contained by the RBI when they were put under the PCA framework. The restrictions under the framework, which included restriction on dividend distribution, restriction on branch expansion, restriction on management compensation and director’s fees, could be imposed as and when the banks would breach various regulatory threshold limits.

As per RBI, a bank’s financial position was to be analysed based on its capital, asset quality and profitability. Banks were required to maintain capital to risk asset ratio at 10.25 percent, net non-performing advance ratio at least below six percent and maintain profitability for two consecutive years.

The government and the RBI were found to be at loggerheads with each other due to strict regulatory requirements imposed by the apex bank. Centre had contested that common equity ratio (CER), as specified by the RBI, was higher than the global norms.

CER, a measure to gauge the bank’s ability to absorb loss, is 4.5 percent as per globally accepted Basel III norms. This is 5.5 percent for India. Similarly, minimum Tier-I capital ratio is six percent as per Basel-III norms but 7 percent for India and minimum total capital ratio is eight percent as per Basel norms but nine percent for India.

The government and banks had lobbied to bring down the regulatory requirement, reasoning that norms must be “in line with global standards”. The Central bank, however, refused to budge stating that Indian banks need to be “strong” in case they absorb losses due to mounting non-performing assets.

The NPAs were close to Rs 10 lakh crore at the end of March 2018, of these over Rs 9.62 lakh crore were in PSBs.

NPAs, however, have shown negative trend in FY19 and have reduced by Rs 23,860 crore between April-September 2018. Banks have also been able to recover Rs 60,726 crore during the same period. The recovery is more than double the amount recovered in the corresponding period last year.

The RBI, in its bi-annual Financial Stability Report (FSR) said NPAs in the banking sector may reduce from 10.8 percent (registered in September 2018) to 10.3 percent by March 2019 and further to 10.2 percent by September 2019. The ratio was 11.5 percent at the end of March 2018.

On January 31, RBI invoked PCA restrictions on three banks – Bank of Maharashtra, Bank of India and Oriental Bank of Commerce – after their improved Q3 performance, leavng eight PSBs under the PCA framework.

While, BoM witnessed a fall in Net NPA ratio from 10.61 percent (Q2) to 5.91 percent (Q3), BoI’s net NPA ratio fell from 7.64 percent to 5.87 percent. OBC reduced its NNPA from 10.07 percent to 7.15 percent.

The government during the revised budget of 2018-19 had upped the recap bond allocation from Rs 65,000 crore to Rs 1.06 lakh crore.

Kumar said that government has infused Rs 1.01 lakh crore in FY19 and has “withheld Rs 5,000 crore as cushion in case further recap is required”. He said that the government was eyeing recoveries worth Rs 1.8  lakh crore in 2018-19.

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