Cen­tre ex­hausts a third of re­cap funds on just 5 PSBs so far

The Hindu Business Line - - BANKING - RAD­HIKA MER­WIN

The Cen­tre in­fus­ing yet an­other round of cap­i­tal into hard-hit Al­la­habad Bank, af­ter just four months of pump­ing in ₹1,790 crore, does not paint a very com­fort­ing pic­ture on the re­cap­i­tal­i­sa­tion front this fis­cal.

Of the ₹65,000 crore ear­marked for this fis­cal, the Cen­tre had in­fused about ₹11,300 crore into five PSBs – IOB, Cor­po­ra­tion Bank, Al­la­habad Bank, PNB, and Andhra Bank – in July. But lin­ger­ing as­set-qual­ity is­sues and high pro­vi­sion­ing have eaten into banks’ cap­i­tal, re­quir­ing more rounds of cap­i­tal in­fu­sion into th­ese banks. The Cen­tre in­fused ₹1,500 crore into Al­la­habad Bank in FY18 (more than dou­ble the to­tal amount in­fused be­tween FY15 and FY17).

De­spite this, the bank’s Tier I cap­i­tal stood at an abysmal 6.7 per cent as of March 2018 (be­low the man­dated 7 per cent). In the June quar­ter, the bank posted a loss of ₹1,944 crore, and its Tier I cap­i­tal stood at a low 4.9 per cent.

The Cen­tre had in­fused ₹1,790 crore in July, and now has in­fused a much higher ₹3,054 crore, im­ply­ing that the bank’s per­for­mance may have turned from bad to worse. The bank’s Septem­ber The Cen­tre re­cently in­fused ₹3,054 crore into Al­la­habad Bank

quar­ter re­sults are ex­pected next week.

The Cen­tre was also forced to in­fuse a sec­ond round of cap­i­tal into scam-hit PNB

this fis­cal. De­spite the Cen­tre’s tidy cap­i­tal in­fu­sion of ₹5,473 crore into PNB in FY18, the bank’s Tier I cap­i­tal stood just above the man­dated 7 per cent re­quire­ment in the June quar­ter. This fis­cal, af­ter the Cen­tre in­fused ₹2,816 crore into the bank in July, it once again pumped ₹5,431 crore in the Septem­ber quar­ter.

The bank’s Tier 1 cap­i­tal is still a wor­ri­some 7.7 per cent at the end of the Septem­ber quar­ter.

Run­ning dry

Last fis­cal, the Cen­tre had in­fused about ₹88,000 crore into 20 PSBs.

In the cur­rent fis­cal, the Cen­tre has in­fused nearly ₹20,000 crore of its ₹65,000-crore re­cap­i­tal­i­sa­tion kitty into just five PSBs so far.

The sec­ond round of cap­i­tal in­fu­sion into two of th­ese PSBs im­plies that the Cen­tre may find it dif­fi­cult to meet the re­quire­ments of such banks with its ear­marked kitty.

Go­ing by the re­cent quar­ter num­bers, there are still a few banks that ap­pear to be in dire need of funds – Ori­en­tal Bank of Com­merce, Dena Bank, and UCO Bank (as per June quar­ter re­sults) have a Tier 1 cap­i­tal ra­tio of a lit­tle over 7 per cent – and have not been con­sid­ered for fund­ing so far.

As al­ways, cap­i­tal in­fu­sion at PSBs leads to ero­sion in book value due to the abysmal val­u­a­tion at which the in­fu­sion takes place. What has been par­tic­u­larly wor­ry­ing is that mas­sive cap­i­tal in­fu­sion in many banks over the past year has been close to or even higher than their mar­ket cap, lead­ing to much higher ero­sion in book value.

The cur­rent mar­ket cap­i­tal­i­sa­tion of Al­la­habad Bank is about ₹4,600 crore.

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