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PSU banks capital infusion
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Recently Government approved capital infusion of Rs. 48,239 cr into 12 PSU bank. This step is taken to aid them in meeting capital requirements and accelerate lending to boost growth (especially to small businesses).

With this capital infusion, government has approved total infusion of Rs. 1,89,000 cr out of 1,94,000 cr; keeping the remaining Rs. 5,000 cr for any last minute contingency (including amalgamated entity of Bank of Baroda). The move is part of the ₹2.1 trillion bank recapitalization plan announced in October 2017 to improve the health of the banking sector struggling with a pile of toxic assets. Official data shows that scheduled commercial banks had ₹10 trillion of gross NPAs at the end of December 2018.

Reason for this action:

  1. To provide minimum regulatory capital to banks that come under Reserve Bank of India’s prompt corrective action (PCA) framework
  2. To prevent shaky banks from breaking the framework’s triggers.
  3. This step along with RBI reducing interest rates by 25 basis points is in line with government taking measures to improve access to credit to job-creating sectors of the economy and to stimulate economic growth.

The following table explains the impact of the capital infusion on the respective banks:

 

Banks

Capital Infusion

(Rs. Cr)

Aid PSBs that were withdrawn from PCA to remain above PCA triggers

4,843

Bank Of India

4,638

Bank Of Maharashtra

205

Support PSBs in meeting the required edge of 7.375% of common equity tier-1  ratio, 8.875% tier-1 ratio, 10.375% capital to risk weighted asset ratio and bring down net non-performing assets lower than 6%.

15,982

Corporation Bank

9,086

Allahabad Bank

6,896

Help PSBs to meet minimum regulatory capital norms for CET 1, tier 1 and Capital to risk assets ratio.

12,535

Indian Overseas Bank

3,806

UCO Bank 

3,330

United Bank of India

2,839

Central Bank Of India

2,560

Help Non PCA PSbs from violating thresholds of the PCA framework

14,879

Punjab National Bank

5,908

Union Bank Of India 

4,112

Andhra Bank 

3,256

Syndicate Bank 

1,603

TOTAL

48,239

 

When 11 PSUs were put under the PCA framework, their lending ability was contained by RBI. The restrictions under the framework, that comprises of restriction on branch expansion, limitation on dividend distribution, restriction on management compensation and director’s fees, could be imposed as and when the banks would break various regulatory threshold limits. It is expected that this measure would help banks become ‘strong’ and enable them to absorb losses if their NPAs increase; and finally equip them to start lending again.

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