Govt to infuse R113bn into five PSBs soon

The government has decided to infuse ~113 billion into five public sector banks, including Punjab National Bank, to help them meet regulatory capital requirements, according to sources.

The capital infusion will be part of the ~2.11-trillion recapitalisation plan for public sector banks announced by the government last year. It is a result of the banks’ inability to fund the interest payment to bond holders of Additional Tier 1 (AT-1) bonds, sources said.

AT-1 bonds are perpetual in nature and therefore provide higher interest rates to investors. A high level of bad loans and widening losses have made it difficult for banks to service these bonds from their own earnings.

As a result, public sector banks were facing the risk of breaching the regulatory capital requirement, sources said.

The government would likely infuse ~28.2 billion into Punjab National Bank, ~25.5 billion into Corporation Bank, ~21.6 billion into Indian Overseas Bank, ~20.2 billion into Andhra Bank and ~18 billion into Allahabad Bank, an official said.

The government will issue recapitalisation bonds to infuse capital into these lenders and have sought regulatory approvals, sources said.

The infusion would be part of the remaining ~650 billion out of the ~2.11-trillion capital infusion over two financial years.

The government had announced a ~2.11-trillion capital infusion programme in October last year. According to the plan, public sector banks were to get ~1.35 trillion through re-capitalisation bonds, and the balance ~580 billion through fund raising from the market.

Of the ~1.35 trillion, the government has already infused around ~710 billion through recap bonds, and the balance would be done during the current financial year.