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14-Dec2018

Govt mulls extra capital infusion of Rs 30,000 crore in PSBs

The government is considering additional capital infusion of up to Rs 30,000 crore in public sector banks (PSBs).  It is expected that final decision will come in the next few weeks. The government is considering additional capital infusion as PSBs have been unable to raise required funds from the markets so far on account of subdued market conditions. As part of the capital infusion plan announced by the Finance Ministry in October 2017, the government envisaged that PSBs would raise Rs 58,000 crore from the stock markets by March 2019 to meet Basel III norms.

Besides, non-performing assets of many banks have seen a spurt in the first two quarters of current financial year (FY19), putting stress on their bottomlines. Though, the banks have got a breather in respect of Capital Conservation Buffer (CCB), a part of Basel III norms. The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 37,000 crore in the hands of banks. In spite of this relaxation, banks need more funds to meet global capital norms called Basel III as the RBI has retained the capital to risk weighted assets ratio (CRAR) at 9%, the shortfall could be around Rs 30,000 crore.

With a view to support credit growth, the government had decided to take a massive step to capitalise PSBs in a front-loaded manner. This entailed mobilisation of capital to the tune of about Rs 2,11,000 crore over the next two years - through budgetary provisions of Rs 18,139 crore, recapitalisation bonds of Rs1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity estimated at Rs 58,000 crore. As per this plan, the remaining capital infusion is about Rs 42,000 crore. Earlier this year, in order to improve their financial health, the government had pumped in Rs 11,336 crore into five PSBs - PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank.


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