A person holds indian currency (Photographer: Dhiraj Singh/Bloomberg) 

Next Capital Infusion Of Rs 42,000 Crore In State-Owned Banks By Dec. 15

The government may infuse around Rs 42,000 crore—the remaining amount of its Rs 2.11-lakh-crore recapitalisation programme announced last year—by Dec. 15, a senior government official told reporters.

The latest infusion will help banks meet the regulatory capital requirements, the official said, adding big lenders like State Bank of India and Punjab National Bank may not feature in this list as they do not need any more capital from the government this year.

Of the Rs 2.11 lakh crore to be infused in public sector banks for two years, Rs 1.35 lakh crore has to come via the issue of recapitalisation bonds.

To be sure, the Finance Ministry had decided not to curtail the infusion plan for this financial year. That comes after the Reserve Bank of India’s decision to defer the deadline to meet the “capital conservation buffer” of 2.5 percent by one year, freeing about Rs 37,000 crore for banks. The central bank in its board meeting decided to extend the implementation of the last tranche of 0.625 percent of capital conservation buffer by a year to March 2020.

Also read: One More Year To Meet Basel III Norms Is Not Really A Relief, Says R Gandhi

Recapitalisation: Was Rs 2.11 Lakh Crore Enough?

The capital adequacy levels of ten out of 21 public sector banks fell in September 2018 as compared with September 2017 before the Rs 2.11 lakh-crore recapitalisation programme was announced. As of September-end, two banks—Allahabad Bank and IDBI Bank—reported a common equity tier-1 ratio that was below the minimum requirement of 5.5 percent.

Emkay Global Financial Services in its assessment in November 2017 estimated that public-sector banks require an additional Rs 2.6 lakh crore keeping under consideration reasonable haircuts for stressed assets, said Dhananjay Sinha, head of research at the firm. The capital provided to banks by the government has been used for provisioning and providing for mark-to-market losses, impacting their CET-1 ratio, Sinha told BloombergQuint.

State-run banks, according to a report by rating agency Crisil, will need Rs 1.2 lakh crore in fresh capital by March 2019 to meet regulatory requirements. The requirement is Rs 21,000 crore more than the Rs 2.11 lakh crore announced by the government in its bank recapitalisation plan last October.

Exiting From Corrective Action

However, the capital infusion has helped banks increase provisions. This may allow some of them to exit the RBI’s corrective action framework by the end of the current fiscal.

About five banks may come out of the RBI’s prompt corrective action framework, the official cited earlier said.

At present, 11 banks are under the corrective action framework. The central bank in its board meet said it will reconsider the guidelines at the government’s insistence. The RBI’s Board of Financial Supervision is expected to meet on Dec. 7 in this regard.

Non-performing assets of these five banks have reduced, while their current account-savings account and provision coverage ratios have improved, the official said.

Also read: RBI Board Decision To Extend Timeline For Banks To Meet Capital Norms ‘Credit Negative’: Moody’s