Bank recapitalisation: FinMin mulls pumping funds in more in PSUs by Sept

After approving capital support for five public sector banks (PSBs), the finance ministry is assessing the needs of 2-3 more banks and fund infusion in them would be done by the end of the second quarter of the current fiscal.

The ministry has already finalised capital infusion of Rs 113.36 billion in five PSBs to help them meet their interest payment commitments without impacting their regulatory capital requirements, a senior government official said.

Two or three more banks will need capital to meet the norms in the coming few weeks, the official said, adding that they would get funds by September.

These banks have come under pressure because of interest payment to their bondholders of Additional Tier 1 (AT-1) bonds.

As a result, they were facing the risk of breaching the regulatory capital requirement, sources said, adding that the ministry has decided to provide capital to 4-5 banks which are facing "acute shortage".

Banks raise capital through AT1 bonds, which are perpetual in nature and therefore provide higher interest rate to investors. A high level of bad loans and widening losses have made it difficult for banks to service these bonds from their own earnings.

Five banks which will soon get capital include Punjab National Bank (PNB), hit by Nirav Modi scam, which will get the highest amount of Rs 28.16 billion out, while Allahabad Bank to get Rs 17.9 billion.

Besides, Andhra Bank to get Rs 20.19 billion, Indian Overseas Bank - Rs 21.57 billion and Corporation Bank - Rs 25.55 billion.

The infusion would be the part of remaining Rs 650 billion out of Rs 2.11 trillion capital infusion over two financial years.

In the second half of the current fiscal, the official said, banks will get growth capital to enable them to expand lending activity.

The government announced Rs 2.11 trillion capital infusion programme October last year. As per the plan, the PSBs were to get Rs 1.35 trillion through re-capitalisation bonds, and the balance Rs 580 billion through raising of capital from the market.

Out of the Rs 1.35 trillion the government has already infused about Rs 710 billion through recap bonds in the banks and balance would be done during this fiscal.

Besides, PSBs are also planning to tap the markets to raise more than Rs 500 billion this fiscal to shore up their capital base for business growth and meeting regulatory global risk norms.

Capital is very much required for these banks as they are saddled with non-performing assets (NPAs) or bad loans of about Rs 10 trillion.

Out of 21 public sector banks, 13 have already taken the approval of their boards or shareholders for raising capital through the equity market,

The combined value of the shares sales of these banks is upwards of Rs 500 billion.

Leading the pack is the Central Bank of India, which has already got shareholders' approval for raising Rs 80 billion equity capital through various means, including a follow-on public offer, rights issue or a qualified institutional placement (QIP), to shore up its capital base.