Indian five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Earn Your Capital, Government Tells Public Sector Banks

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  • The government of India has attached strict performance conditions to the second tranche of capital to be infused into public sector banks (PSBs) before the current fiscal year ends.

    The capital infusion, this time of more than Rs 8,000 crore into 10 banks, will "require a tripartite Memorandum of Understanding between the Government of India, PSB management and employees of the PSBs concerned," the finance ministry said in a letter dated March 16 to the banks who are receiving additional capital. BloombergQuint has seen a copy of the letter. The news was reported by Mint newspaper on Monday morning.

    The ten banks getting capital includes Allahabad Bank, Andhra Bank, Bank of India, Bank of Maharashtra, Central Bank of India, Dena Bank, IDBI Bank, Indian Overseas Bank, Uco Bank and United Bank of India.

    Each of these banks will have to commit to a performance improvement plan with "quantifiable and measurable milestones" monitored on a quarterly basis, the letter said.

    The conditions detailed by the government include:

    • Active non performing assets (NPA) management and strengthening of credit underwriting and monitoring process
    • Arranging capital from the market
    • Continuing plan for disposal of non-core assets
    • Divestement of subsidiary stake to closure of loss making domestic or international branches
    • Rationalisation and reduction of administrative and operative expenses including temporary restructuring of employee benefits
    The release of capital is based on the premise that banks would significantly improve their performance with prudent financial management and going further that they will be able to meet capital needs through their own earnings.
    Department of Financial Services Letter To Banks

    Under the Indradhanush programme, the government has committed to infusing Rs 70,000 crore in state banks over four years. Of this, Rs 25,000 crore was infused in 2015-16 and 2016-17 each. Another Rs 10,000 crore each will be infused in 2017-18 and 2018-19.

    BloombergQuint