Economy

Finmin revises criteria for recapitalisation of PSU banks

The second tranche of capital allocation for this fiscal year will be based on cost of operations

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 fiscal 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 fiscal will be eligible for the second round of funding, sources added.

The money was allocated last fiscal 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 in a statement.

“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).

Capital infusion

The capital infusion exercise for the current fiscal is based on an assessment of need as per the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and estimates of the potential for growth of each 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 PSU banks. “If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these Banks.”

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Printable version | Feb 21, 2020 2:30:37 AM | https://www.thehindu.com/business/Economy/Finmin-revises-criteria-for-recapitalisation-of-PSU-banks/article14633095.ece

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