Govt to infuse Rs 14,500 crore in 4 PSU banks through recapitalisation bonds

The Finance Ministry on Wednesday notified that government will infuse Rs 14,500 crore through recapitalisation bonds in four public sector banks. The notification issued by the finance ministry said that government would infuse capital by issuing non-interest-bearing bonds to banks.

The step completes the government’s capital infusion of Rs 20,000 crore in public sector banks for the current financial year. Government had earlier infused Rs 5,500 crore in Punjab and Sind Bank in December 2020.

The four lenders in which government will infuse capital include Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank. Central Bank of India will receive highest capital infusion of Rs 4,800 crore, followed by Rs 4,100 crore by Indian Overseas Bank. Similarly, government will infuse Rs 3,000 crore in Bank of India and Rs 2,600 crore in UCO Bank. The notification by finance ministry also says that recapitalisation bonds will be issued with six different maturities.

Out of four lenders chosen by the government for capital infusion, three banks are under prompt corrective action (PCA) framework of Reserve Bank of India (RBI). Indian Overseas Bank, Central Bank of India and UCO Bank are currently under this framework that puts several restrictions on them, including on lending, management compensation and directors’ fees. Experts believe capital infusion from government will help these three banks to come out of PCA restrictions in 2021-22 (FY22).

Anil Gupta, vice president, financial sector ratings, Icra said that with government of India (GoI) deciding to infuse substantial capital in all the three public banks which were in PCA framework, Icra expects these banks to come out of PCA in FY22. “However, given the capital infusion is through zero coupon recapitalisation bonds, the earning profile of these banks may not improve on account of this transaction as their capital position improves,” he added.

Earlier this month, IDBI Bank was removed from the RBI’s PCA framework after a gap of nearly four years on improved financial performance. The central bank had placed IDBI Bank under the PCA framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality, return on assets and the leverage ratio.