The Finance Ministry would not curtail its capital infusion plan for this financial year even as state-owned banks would be needing fewer funds following the RBI's decision to defer the deadline to meet Basel III norms by a year, according to sources.
However, there will not be any reduction in the capital funding plan as announced in October last year despite a lower requirement due to the extension of the deadline for meeting the CCB of 2.5 per cent until March 2020, sources said.
The capital infusion would help improve the financial health of banks, sources said, adding that some banks would get necessary regulatory capital while others would get it for fueling growth, they clarified.
Earlier this week, the RBI in the central board meeting decided to extend the implementation of the last tranche of 0.625 per cent of capital conservation buffer by a year to March 2020.
However, the board decided to retain the capital adequacy ratio or CRAR at 9 per cent, against 8 per cent prescribed by Basel III norms.
The CCB currently stands at 1.875 per cent and the remaining 0.625 per cent was to be met by March 2019, as per the earlier deadline fixed by the RBI.
The extension of the timeline for the implementation of the last tranche of the CCB under Basel-III capital regulations could reduce the burden of public sector banks (PSBs) by Rs 350 billion this fiscal, according to rating agency Crisil.
Generally, there is a leverage of 10 times on the capital, sources said adding that the lending capacity would increase by Rs 3.5 trillion.
After assessing the requirement of each bank, the ministry is expected to finalise the capital infusion of about Rs 540 billion by this month-end or by the first half of the next month.
The ministry had earlier this year provided a capital infusion of Rs 113.36 billion to five PSBs to help them meet their interest payment commitments.
Punjab National Bank (PNB), hit by the Nirav Modi scam, got the highest amount of Rs 28.16 billion, while Allahabad Bank received Rs 17.90 billion. Andhra Bank got the capital support of Rs 20.19 billion, Indian Overseas Bank received Rs 21.57 billion and Corporation Bank got Rs 25.55 billion.
The infusion was part of the remaining Rs 650 billion out of Rs 2.11 trillion capital infusion over two financial years.
The government announced the Rs 2.11 trillion capital infusion programme in 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 the raising of capital from the market.
Out of the Rs 1.35 trillion, the government has already infused about Rs 820 billion through recap bonds and the balance would be done during this fiscal.