Banks recapitalisation: Govt to infuse Rs 76 billion into six weak PSBs

Lenders, which will receive capital via preferential issue of shares, include Bank of India, IDBI Bank and UCO Bank

The finance ministry has approved a proposal for infusion of Rs 75.77 billion in six weak public sector banks (PSBs) as part of the recapitalisation plan to bolster capital adequacy ratio. All these banks, which got capital support, are under prompt corrective action of the Reserve Bank of India (RBI).

The funding comes under the government’s Indradhanus plan, which promised Rs 700 billion over a period of four years ending March 2019.

Lenders, which will receive capital through preferential issue of shares, include Bank of India, IDBI Bank and UCO Bank. The actual fund infusion will take place in the next few weeks after they get necessary regulatory approval, including nod from shareholders.

Kolkata-based UCO Bank has announced approval of board for the proposal to issue equity shares on a preferential basis to the government against a capital contribution of Rs 13.75 billion, subject to necessary approval.

Besides, Central Bank of India said the capital-raising committee of the board approved raising of equity capital by allotting up to 38.8 million shares at the issue price of Rs 83.15 per unit aggregating to Rs 3.23 billion. At the same time, the government has decided to infuse Rs 22.57 billion in the Bank of India, Rs 27.29 billion in IDBI Bank, Rs 6.50 billion in Bank of Maharashtra, and Rs 2.43 billion in Dena Bank.

While the government decides the mode for recapitalisation of all state-run banks, it advanced the release of funds to these six banks to help them meet their equity requirements and enable them to resume normal business and help them come out of prompt corrective action.

Finance Minister Arun Jaitley in October had announced an unprecedented Rs 2.11 trillion two-year road map to strengthen PSBs, reeling under high non-performing assets (NPAs) or bad loans. Their NPAs have increased to Rs 7.33 trillion as of June 2017, from Rs 2.75 trillion in March 2015.

The plan includes floating recapitalisation bonds of Rs 1.35 trillion and raising Rs 580 billion from the market by diluting government’s stake.

The government is working on the modalities for issuing the recapitalisation bonds as it aims to front-load the infusion with an aim to strengthen the state-owned banking sector, sources said, adding the announcement in this respect, including detailed guidelines, will be made during this month.

Allahabad Bank 

Public sector Allahabad Bank on Wednesday said the RBI had put the lender under prompt corrective action framework after an on-site inspection of high NPAs and negative return of assets for 2016-17.

Jaitley had also announced that banks would get about Rs 180 billion under the Indradhanush plan over the next two years.

Under the Indradhanush road map announced in 2015, the government had announced an infusion of Rs 700 billion in state-owned banks over four years, while they will have to raise a further Rs 1.1 trillion from the market to meet their capital requirement in line with global risk norms, known as Basel-III.

In the last three-and-a-half years, the government pumped Rs 518.58 billion capital in the PSBs. The remaining Rs 181.42 billion will be injected into the banks over the next two years.