Government Set To Fund Six State-Run Banks Under PCA Framework

The government will inject capital in six of the 11 state-run banks that are under the Reserve Bank of India’s Prompt Corrective Action framework as part of its augmented recapitilisation plan, according to two people aware of the development.

While United Bank of India informed the exchanges that it’ll receive a fresh infusion, officials at Bank of India, UCO Bank, Central Bank, Bank of Maharashtra and Oriental Bank of Commerce separately confirmed to BloombergQuint that the lenders will receive capital from the government. They didn’t want to be identified as they’re not authorised to speak to the media.

The capital infusion will be through recapitalisation bonds that will be fiscal neutral, the government announced last week. It sought permission from parliament to enhance the funding for banks by Rs 41,000 crore, over and above the initial infusion plan worth Rs 2.11 lakh crore announced in October 2017. The latest funding is aimed at lenders that face restrictions because of weak financial and operational metrics.

Bank of India is set to receive Rs 10,000 crore from the government—the highest among the six banks—a senior bank official told BloombergQuint.

United Bank of India said that it’ll receive Rs 2,159 crore, which will likely help the lender meet its minimum capital adequacy ratio under the Basel-III guidelines. The Kolkata-based lender’s tier-1 ratio was 5.82 percent as of Sept. 30, below the RBI’s mandated 6.75 percent. Lenders must meet this condition, apart from others such as guidelines on minimum return on assets and non-performing assets, if they are to come out of the PCA framework.

A senior official at UCO Bank said that the lender is expected to receive Rs 3,076 crore. The bank’s tier- 1 ratio was 5.57 percent in the September-ended quarter. The additional capital, the official said on condition of anonymity, will result in the bank’s tier-I ratio rising above 7 percent.

While this isn’t enough to take the bank out of the PCA framework, it will help it to lend more to retail customers, the official said. The official also said the bank’s profitability would be hit by considerable ageing provisions during the October-December quarter and that the recapitalisation would be help curtail losses to an extent.

Central Bank of India is set to receive Rs 1,648 crore from the government, a senior bank official told BloombergQuint. Bank of Maharashtra will receive Rs 4,498 crore under this plan, according to another senior official.

While bankers confirmed that Oriental Bank of Commerce is also set to receive additional capital from the government, BloombergQuint was unable to independently verify the amount that it will receive.

After the current round of capital infusion, the government would have infused at least Rs 3 lakh crore since 2015. While the government started with a tough capital infusion plan that required banks to achieve certain financial milestones before being eligible for capital, it had to backtrack as bad loan ratios of public-sector banks rose considerably in the last four years.