Govt to infuse ₹42,000 crore in state-run banks by March
NEW DELHI: State-run banks are set to receive ₹42,000 crore in capital infusion over the next four months as part of the ₹2.11 lakh crore mega capitalization plan announced by the Union government last year, said a senior finance ministry official.
Big lenders such as State Bank of India (SBI) and Punjab National Bank (PNB) may however be excluded from this exercise, said the official, requesting anonymity.
The next tranche of infusion will happen next month, said the official.
The development comes at a time when the Reserve Bank of India (RBI) has partially relaxed rules relating to implementation of Basel III norms. Local banks will receive an additional one year to meet the capital conservation buffer requirements, according to a decision taken at the central bank’s board meeting last week. Banks will have to meet the capital conservation buffer norms under Basel III by March 31, 2020.
The rule is designed to ensure that banks build up capital buffers at times when credit is growing, which can be drawn down when losses are incurred during a stressed period. The capital conservation buffer in the form of common equity is being uniformly phased over a period of four years, or 0.625% a year, starting January 1, 2016.
The extension of the deadline will free up capital of these banks and enable them to lend more than ₹3.5 lakh crore.
“We will infuse the next tranche of recapitalization by midDecember. Close to ₹42,000 crore remain to be infused as capital in public sector banks in the current financial year,” the official added.
Of the ₹2.11 lakh crore capital infusion plan, ₹1.35 lakh crore was from the sale of so-called recapitalization bonds. The remaining ₹76,000 crore was through budgetary allocation and fundraising from the markets. State-run banks have been struggling with high levels of bad debts, as well as huge losses, forcing the government to capitalize them to ensure they meet the prescribed capital norms.
However, fiscal constraints are preventing capital infusion over and above what was budgeted. The government is relying on massive recoveries from a few cases that are in the last stages of resolution under the insolvency and bankruptcy code. It hopes to improve the balance sheets of banks and enable them to turn profitable, thereby reducing their dependency on the government.
The capital infusion will also help at least five banks come out of the prompt corrective action (PCA) framework of the RBI, said the official. Eleven of the 21 state-run banks are under the RBI’s PCA framework.
PTI contributed to this story.