Capital Infusion on PSU Banks

Capital Infusion on PSU Banks

Government of India has come out with a whopping Rs. 881 billion for recapitalization of public sector banks through bonds in 2017-18 financial years.  This will pave way for 20 PSU banks in meeting their Capital Adequacy requirements.

Strict terms have been placed, for issue of these recapitalisation bonds.  Few of them are:

  • Creation of a stressed asset management vertical to be tied up with agencies, for specialised monitoring of loans above Rs. 2.5 billion
  • Strict surveillance on big loan defaulters
  • Appointment of a whole time director for monitoring reforms every quarter

What this recapitalisation expected to bring?

  1. It enables an additional credit off take capacity of PSU Banks by more than Rs. 5 trillion.
  2. Banks now, will be able to maintain regulartory capital requirements which could lead for further growth.
  3. Banks have an opportunity to go for reforms, and become more professional and ensure clean and prudent lending policies.
  4. Size of consortium to reduce to 7-8 banks from 20-22 banks with minimum 10% exposure for each bank.

Following is the chart which gives the details of capital infusion to different PSU Banks.

(Amount in Rs. Billion)
(1) BANKS REQUIRING PCA (2) Non-PCA Banks –Stronger PSBs
IDBI Bank 106.1 State Bank of India   88.0
Bank of India 92.3 Punjab National Bank   54.7
UCO Bank 65.1 UCO Bank   53.7
Central Bank of India 51.6 Bank of Baroda   48.6
Indian Overseas Bank 47.0 Canara Bank 47.0
OBC 35.7 Union Bank of India 45.2
Dena Bank 30.4 Syndicate Bank 28.4
Bank of Maharashtra 31.7 Andhra Bank 18.9
United Western Bank 26.3 Vijaya Bank 12.7
Corporation Bank 21.8 Punjab & Sind Bank 7.8
Allahabad Bank 15.0
Total 523.0 Total 358.0

i) Maturity : 10-15 years in six slots
ii) Coupon rate is floating but will not be more than 8%                          Source: Finance Ministry

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