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  3. Additional capital infusion of Rs 41,000 crore into PSBs to help them lower NPAs: ICRA

Additional capital infusion of Rs 41,000 crore into PSBs to help them lower NPAs: ICRA

09 Jan 2019 Evaluate

The rating agency ICRA in its latest report has said that the government’s decision to infuse additional Rs 41,000 crore into cash-starved public sector banks (PSBs) for the financial year 2019 is optimistic for these lenders as it will assist them lower their losses on dud loans. It noted that the government had sought Parliament’s approval for infusion of an additional Rs 41,000 crore, taking the total fund infusion to Rs 1.06 trillion in FY19.  It added that with this round, the overall capital infusion into state-run banks during FY15-FY19 stands at Rs 2.56 trillion. 

According to the report, 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. It also pointed out that of the 21 state-owned banks, as many as 11 are under the PCA framework, which imposes lending restrictions on weak banks. It stated that after the merger of Dena and Vijaya Bank with Bank of Baroda (BoB), the number of state-run banks will come down to 19. It added that as a part of capital allocation plan for FY19, recently some state-run lenders have been allocated a relatively higher quantum of capital.

ICRA further said that 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). 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, it expects most of these banks currently under the PCA to report second consecutive year of losses in FY19.

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