Finance Ministry revises criteria for recapitalisation of PSU banks

State-owned banks looking forward to the next round of capital infusion will need to fulfil a new set of criteria, including credit recovery, as the finance ministry has revised the recapitalisation norms.

The second tranche of capital allocation for the current financial year would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets, sources said.

Only those lenders that fulfil the criteria post third quarter (October-December) results of the current financial year will be eligible for the second round of funding, sources added.

The money was allocated last financial year on the twin principles of ensuring 7.5 per cent Common Equity Tier 1 (CET 1) at the end of the 2016 and growth capital to five major banks. The government in July had announced the first round of capital infusion of Rs 22,915 crore for 13 banks. “Seventy five per cent of the amount (Rs 22,915 crore)...is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” the finance ministry had said.

“The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations,” it had said.

The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market.

Out of the Rs 22,915 crore, State Bank of India (SBI) was provided Rs 7,575 crore followed by Indian Overseas Bank (Rs  3,101 crore) and Punjab National Bank (Rs 2,816 crore). The other lenders, which have got commitment of capital infusion are Bank of India (Rs 1,784 crore), Central Bank of India (Rs 1,729 crore), Syndicate Bank (Rs 1,034 crore), UCO Bank (Rs 1,033 crore), Canara Bank (Rs 997 crore), United Bank of India (Rs 810 crore), Union Bank of India (Rs 721 crore), Corporation Bank (Rs 677 crore), Dena Bank (Rs 594 crore) and Allahabad Bank (Rs 44 crore).

The capital infusion exercise for the current financial year is based on an assessment of need according to the compounded annual growth rate (CAGR) of credit growth for the past five years, banks’ own projections of credit growth and estimates of the potential for growth of each Public Sector Bank (PSB), it had said.

Finance Minister Arun Jaitley in his Budget speech for 2016-17 had proposed to allocate Rs 25,000 crore towards recapitalisation of PSBs. "If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these banks,” he had said.
RECOVERY PLAN

• The second tranche of capital allocation for the current financial year likely to be based on cost of operations
   
• Only those lenders fulfilling the criteria after the third quarter (Oct-Dec) results of the current financial year will be eligible for the second round of funding
   
• The government had in July announced the first round of capital infusion of Rs 22,915 crore for 13 banks