Govt to pump Rs 11,300 crore in PNB including four other banks
New Delhi : The government in India has decided to introduce more than ₹11,300 crore into five state-run banks in a few days since it aims to provide capital support to poor banks, a person close to the development said.
The five banks which will receive monetary help include Allahabad Bank, Corporation Bank and Indian Overseas Bank, Punjab National Bank (PNB) and Andhra Bank. The former three have been placed under Reserve Bank of India’s (RBI’s) prompt corrective action (PCA) framework. The latter two have the PCA threat alarming over them due to weak capital adequacy ratios and high levels of bad liability.
When it comes to PNB, the capital infusion is needed to help it avoid defaulting on the interest payments due on its additional tier-1 bonds. The bank has received conditional approval from RBI to pay its interest dues on AT-1 bonds, subject to a capital infusion from the government, said a second person familiar with the development. The interest payout on its ₹1,500 crore worth of bonds (8.98% annual) is due on 25 July and the lender has to receive the capital infusion before that, this person added.
PNB was kicked by fraudulent case and suffered a record loss of more than ₹12,200 crore in 2017-18, unfavourably impacting its capital adequacy ratio.
Addition of capital infusion into these five banks comes at a time when the mega ₹2.1 trillion capitalization plan of the government announced last year has turned out to be insufficient in the face of the huge losses incurred by state-run banks as of March. Nineteen of the 21 state-run banks reported losses amounting to ₹63,000 crore in the quarter ended 31 March due to rising non-performing loans. Throughout the year, the losses of these 19 banks were more than ₹87,000 crore, nearly wiping out the entire ₹90,000 crore capital infusion by the government in 2017-18.
The balance sheets are doubtfully to improve this fiscal either. RBI, in its financial stability report released last month, had flagged that the gross non-performing asset (NPA) ratio of banks is likely to rise to 12.2% by March 2019 from 11.6% as of March 2018. Also, the Reserve Bank of India said banks under the PCA framework may see their gross NPA ratio worsening to 22.3% by March 2019 from 21% in the year earlier and at least six of these 11 banks would see their capital adequacy drop below the regulatory needs.
In 2017-18, the government infused ₹10,000 crore through direct capital infusion and ₹80,000 crore through recapitalization bonds.
The government had not resourced for any direct capital infusion in the current fiscal. As an alternative, it had only budgeted capitalizing state-run banks through recapitalization bonds amounting to ₹65,000 crore in 2018-19.
