SBI likely to lower minimum balance requirement, move to quarterly avgs
Move signals govt has frontloaded bond issuance programme, leaving ₹55,000 crore for next fiscal
NEW DELHI: The State Bank of India (SBI) is likely to make changes to its rules for maintaining minimum balance in savings accounts and slash penalties for going under the limit, officials said.
The officials said that the country’s largest lender is likely to move from a system of average monthly balance to an average quarterly balance.
“The charges for non-maintenance of minimum balance will be reduced by two-thirds of the current penalty,” said an official, who asked not to be named. Currently, the monthly average balance for State Bank of India savings accounts in urban and metro centres is ₹3,000.
NEW DELHI: The union government’s ambitious plan to recapitalise ailing public sector banks gathered momentum on Thursday, after a proposal was submitted to Parliament to issue ₹80,000 crore worth of bonds for capitalising state-run banks.
The government, however, did not release details of the allocations to state-run banks. It has committed to spending ₹2.11 lakh crore to strengthen bank balance sheets hit by rising bad loans and ensure revival of credit flows to important sectors of the economy.
Markets welcomed the announcement, with state-run banks leading the rally in stock markets. The BSE Bankex was up 144.62 points or 0.51% at 28,777.47 points at the end of trade on Thursday.
Stocks of Punjab National Bank, Bank of Baroda and State Bank of India were the major gainers, rising 5.97%, 3.77% and 1.72% respectively.
The government had initiated the process of capitalising staterun banks with several of them, including Central Bank of India, UCO bank and Bank of Maharashtra, announcing capital infusion by the government over the past few days.
About ₹1.35 lakh crore was to be generated from the sale of so-called recapitalisation bonds and the balance ₹76,000 crore through budgetary allocation and fund-raising from the markets. The proposal moved before Parliament suggests that the government has front-loaded the bond issuance programme, leaving only ₹55,000 crore of recap bonds for the next fiscal.
In its third supplementary demand for grants, the government said this expenditure will be met through enhanced receipts, implying that this additional expenditure may not push up the fiscal deficit.
The bonds will have non-SLR status, will be non-tradeable and will be cash neutral, said a person familiar with the development.
Market participants expect the government to follow the 1990s strategy, when these types of securities were first employed. The government issues recapitalisation bonds to banks in lieu of banks’ equity without triggering a cash outflow for the government.
Stronger capital will also improve the credit profiles of banks and enable them to tap markets at better valuations, according to analysts.
“It is a very substantial amount that the government has committed. It will reduce the pressure on the banking sector. As the stressed assets in the banking system reduce, banks will be in a much better position to lend. But demand for bank credit will depend on the revival of the investment cycle,” said Anubhuti Sahay, head, South Asia Economic Research (India), Standard Chartered Bank.
The bond market expects that these bonds will be categorised in the held-to-maturity (HTM) category of the investment book of banks, which is free from quarter-end mark-to-market provisioning. Being non-SLR securities, the impact on the bond market, especially government bonds, will be limited because it would dilute incremental demand for sovereign bonds.
Moody’s Investors Service, in a note on Thursday, said the capitalisation package will facilitate the two key policy initiatives of non-performing loan (NPL) resolution and Basel III implementation. It expects “the government will allocate the ₹1.5 lakh crore in capital across the country’s 21 public sector banks so that they will all have common equity tier 1 (CET1) ratios above the minimum Basel III requirement of 8% by the end of March 2019.”
Alka Anbarasu, a Moody’s vice-president and senior analyst, said the capital infusion will help state-run banks build their provision coverage ratio, allowing them to take haircuts on problem assets. “Such haircuts reflect one step in the regulator’s efforts towards a thorough clean-up of balance sheets across these banks,” Anbarasu added.
Indian banks are weighed down by stressed assets of close to ₹10 lakh crore .