Govt decision to infuse Rs 41,000 crore capital into state-run banks will help them lower NPAs: Report

With this round, the overall capital infusion into state-run banks during FY15-FY19 stands at Rs 2.56 trillion.

Press Trust of India January 08, 2019 16:37:32 IST
Govt decision to infuse Rs 41,000 crore capital into state-run banks will help them lower NPAs: Report

Mumbai: The government decision to infuse Rs 41,000 crore more capital into the state-run banks is positive for these lenders as it will help them lower their losses on dud loans, says a report.

On 20 December, the government had sought lawmakers' approval for infusion of an additional Rs 41,000 crore, taking the total fund infusion to Rs 1.06 trillion in FY19.

"The government decision to upsize the bank recapitalisation plan for FY19 by Rs 41,000 crore to Rs 1.06 trillion is positive for state-run banks, as many of them
were not able to raise equity capital from markets as was originally envisaged under the recapitalisation plan of Rs 2.11 trillion announced in October 2018," rating agency Icra said in a note Tuesday.

With this round, the overall capital infusion into state-run banks during FY15-FY19 stands at Rs 2.56 trillion.

The current round of recapitalisation would enhance the lending capacity of these banks and help them come out of the Reserve Bank's prompt corrective action (PCA) framework.

Govt decision to infuse Rs 41000 crore capital into staterun banks will help them lower NPAs Report

Representational image. Reuters

As many as 11 of the total 21 state-run banks are under the PCA framework, which imposes lending restrictions on weak banks. After the merger of Dena and Vijaya Bank with BoB, the number of public sector banks will come down to 19.

These are Allahabad Bank, United Bank of India, Corporation Bank, IDBI Bank, Uco Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Oriental Bank of
Commerce, Dena Bank and Bank of Maharashtra.

As a part of capital allocation plan for FY19, recently some state-run lenders have been allocated a relatively higher quantum of capital.

"This capital will enable lenders to reduce their net non-performing advances below the PCA threshold of 6 percent as well as achieving regulatory capital ratios (including capital conservation buffer of 1.875 percent required as of March 2019)," the note said.

Notwithstanding a higher share of capital allocation to some state-owned banks under the PCA, the agency expects capital allocation to other banks under PCA to be limited to enable them to meet the regulatory minimum capital ratios-- 7 percent of tier 1 and 9 percent of CRAR.

Despite additional capital infusion, the agency expects most of these banks currently under the PCA to report second consecutive year of losses in FY19.

Updated Date:

also read

At 7.79% retail inflation soars to eight-year high in April
Business

At 7.79% retail inflation soars to eight-year high in April

Inflation has remained above the RBI's comfort zone of 6 per cent for four months in a row mainly due to the Russia-Ukraine war which has impacted the prices of commodities across the globe

RBI hikes repo rate for first time in four years: What it is and how will it impact loans?
Business

RBI hikes repo rate for first time in four years: What it is and how will it impact loans?

The Reserve Bank of India decided to increase the repo rate by 40 basis points, citing rising inflation. Banks might hike interest rates on loans, which means EMIs on home, auto, and personal loans will go up

Rate hike wasn't surprising, timing was, says Finance Minister Nirmala Sitharaman
Business

Rate hike wasn't surprising, timing was, says Finance Minister Nirmala Sitharaman

The timing of RBI's rate hike came as a surprise but not the action itself as people thought it should have been done anyway