Centre shortlists 7-8 PSBs for recapitalisation this fiscal

The government has shortlisted seven-eight public sector banks for infusing 750-800 bln rupees in the first round of recapitalisation, two finance ministry officials said. These banks will be issued recapitalisation bonds in tranches in the current financial year ending March, the officials said. The banks that could get capital infusion in the first round include State Bank of India, Punjab National Bank, Bank of India and Canara Bank, one official said.

The equity will be utilised by banks to shore up their capital base, which in turn will enable them to take additional haircuts and fast track the resolution process for large non-performing accounts which have been referred to National Company Law Tribunal, the official said.

"The additional capital will help banks to resolve these cases faster," another official said. The government may also sign memorandum of understanding with the banks before giving them additional capital under the new recapitalisation plan. Earlier this week, the government had announced a 2.11-trln-rupee recapitalisation plan for public sector banks as part of efforts to revive the slowing economy.

The two-year capital infusion plan includes 1.35 trln rupees by way of recapitalisation bonds, 181 bln rupees through budgetary support, and 580 bln rupees via raising of capital by banks from the market. "We already have agreements with some banks, if there is a need to sign more such performance-linked MoUs then they will be signed," the second official said. Earlier this year, the government signed memorandum of understanding with 11 state-owned banks, including Allahabad Bank, Bank of India, Central Bank of India, Dena Bank, IDBI Bank, UCO Bank, United Bank of India and Union Bank of India.

"The second round of capital infusion will be based on the performance of the banks and utilisation of the resources," the official said. "There will be targets which they will need to achieve for additional funding." The government will also consider the possibility of mergers after infusing capital in the banks, the second official said.