Govt to pump Rs 113 bn into 5 PSBs to meet regulatory capital requirements

The government has decided to infuse Rs 113 billion into  five public sector banks, including Punjab National Bank, to help them meet regulatory capital requirements, sources said.

The capital infusion will be a part of the Rs 2.11-trillion recapitalisation plan for public sector banks announced by the government last year. It is a result of the banks’ inability to fund the interest payment to bond holders of Additional Tier 1 (AT-1) bonds, according to sources.

AT-1 bonds are perpetual in nature and therefore provide higher interest rates 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.

As a result, public sector banks were facing the risk of breaching the regulatory capital requirement, sources said.

The government would likely infuse Rs 28.2 billion in to Punjab National Bank, Rs 25.5 billion into Corporation Bank, Rs 21.6 billion into Indian Overseas Bank, Rs 20.2 billion into Andhra Bank and Rs 18 billion into Allahabad Bank, an official said.

The government will issue recapitalisation bonds to infuse capital into these lenders and have sought regulatory approvals, sources said.

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

The government had announced a Rs 2.11-trillion capital infusion programme in October last year. According to the plan, public sector banks were to get Rs 1.35 trillion through re-capitalisation bonds, and the balance Rs 580 billion through fund raising from the market.

Out of the Rs 1.35 trillion, the government has already infused around  Rs 710 billion through recap bonds, and balance would be done during the current financial year.