Govt to raise Rs. 10312 crore from the market: Jaitley

  • Govt to raise Rs. 10312 crore from the market: Jaitley

Govt to raise Rs. 10312 crore from the market: Jaitley

But experts have said this "classic parenting technique" would encourage more heedless lending, often at government's behest, thereby adding to the woes of the banking sector.

"We have announced recapitalisation of PSBs in October, 2017 to the tune of Rs 2.11 lakh crore over two years". Back then, the government had spelt out only the basics about the plan.

"This plan addresses regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy", said the government.

Post this round of capital infusion, the common equity tier 1 (CET1) ratio for all PSU banks would reach over 8.5 per cent, with net stressed assets reducing to 102 per cent of net worth from 117 per cent earlier, reports indicate. If such banks get money, it will reflect on their fundamentals going ahead and can be bought into, they say. These reforms would include greater due diligence and a specialised monitoring for loans above Rs 250 crore. The PSBs are faced with mounting non-performing assets (NPAs) or bad loans, putting the financial sector under stress. "We inherited a very major problem and therefore have been involved in finding a solution to that problem", he said.

Yet, not everyone is convinced that these measures are enough.

Other banks with high levels of soured debt - Bank of India and UCO Bank - will get 92.32 billion rupees and 65.07 billion, respectively.

While banks will get the much-needed growth capital, analysts caution against equity dilution as well.

Meanwhile, the PSB banks traded mostly in the red on Thursday.

Of course, the government has justified the higher capital ratio for weak banks saying it's only for the minimum capital requirement bar.

Ahead of the announcement on Wednesday, the markets had factored in a larger share of the near Rs 90000-cr recapitalisation money for the stronger banks. By contrast, smaller state-run lenders such as UCO Bank gained, as analysts said they would receive more funds than expected.

Banks told to limit exposure to big corporate loans to 10% in the case of consortium.

Global brokerage Nomura, however, noted that the capital infusion appears adequate for weaker banks, but it may lead to dilution risk. These banks account for more than 80 per cent of NPAs ailing the Indian banking system.

Of this, public sector banks would need Rs 63,100 crore. This capital infusion will help PSBs meet Basel III capital regulations. It is spread over two fiscal, 2017-18 and 2018-19. "Their performance on the themes would be evaluated by the boards of the banks".