The Centre’s decision to infuse ₹11,336 crore capital in five public sector banks (PSBs) is critical for servicing their debt instruments such as Additional Tier 1 bonds (AT-1), Upper Tier 2 and Innovative Perpetual Debt instruments, rating agency ICRA said.
On Tuesday, the finance ministry approved capital infusion in five banks — Punjab National Bank (₹2,816 crore), Indian Overseas bank (₹2,157 crore), Andhra Bank (₹2,019 crore), Corporation Bank (₹2,555 crore), and Allahabad bank (₹1,790 crore).
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“As per our estimates, adjusted for deferred losses and early recall of AT1 bonds, the Tier 1 ratio of 8 PSBs was lower than the regulatory requirements of 7% hence constraining their ability to meet a CRAR of 9%,” said Anil Gupta, VP, financial sector ratings, ICRA.
These were Andhra Bank, IDBI Bank, Central Bank of India, Indian Overseas Bank, UCO Bank, Allahabad Bank, Corporation Bank and Punjab National Bank.
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“While GoI has announced capital infusion into five of these PSBs and sale of IDBI bank to LIC, we expect further capital announcements for the other PSBs in the near future so that these banks can also meet the regulatory capital requirements,” Mr. Gupta said.
The Centre has budgeted capital infusion of ₹65,000 crore in PSBs. He said while many PSBs are looking to divest their non-core assets and raise capital from the markets, the timing and certainty is difficult to predict.
He added the Centre may raise its budgeted capital requirements, depending on the progress of resolution of NCLT accounts, market capital raising and divestment of non-core assets. “However, that is expected [in] Q3/Q4 of FY19.”