Final bank recapitalisation likely in Q4; lenders out of PCA to get funds

NEW DELHI: The government proposed to recapitalize public sector banks (PSBs) which have emerged from the Reserve Bank of India’s prompt corrective action (PCA) framework and may need additional funds to strengthen their books, two officials said. The finance ministry will finalise the last round of capital infusion for PSBs early next year and will look into the requirements of each bank, especially weak ones that are still under PCA or have recently been out, they added.

PSBs have been asked to provide their capital requirement needs after finalising the accounts for the third quarter of FY22. Based on the requirements, the finance ministry will decide the quantum of capital for each bank.

The budget for FY22 had allocated ₹20,000 crore for bank recapitalization, but a large part of it is yet to be disbursed. It is expected to be released in Q4. Allocations for bank recapitalization may not be a priority in the budget for FY23 and lenders may be encouraged to tap the markets as the government is of the opinion that the financial health of PSBs are showing signs of improvement and they are capable of raising funds from the market, officials said.

Queries to the finance ministry remained unanswered till press time. The banks’ capital requirements will be reviewed in the next quarter. Special attention will be given to requests from weak banks that came out of PCA to ensure they can further strengthen their financials, they added.

In September, the RBI had removed UCO Bank and Indian Overseas Bank from the PCA framework following improvement in various parameters and a written commitment that the state-owned lenders will comply with the minimum capital norms. Now, only Central Bank of India remains under the PCA, which is triggered when lenders breach certain regulatory requirements such as return on assets, minimum capital and the quantum of non-performing assets. Capital needs of the banks may be prioritized when the next round of capital infusion is announced. Recapitalization is expected to help the lenders progress faster on strengthening their financials.

Out of the ₹20,000 crore alloted for five public sector banks under the PCA in FY22, ₹11,500 crore was disbursed to three banks— UCO Bank, Indian Overseas Bank and Central Bank of India. The government has infused over ₹3.15 lakh crore into PSBs in 11 years through 2018-19.