Govt seeks to fast-forward PSU bank recap; can lift 5 lenders out of PCA


Banking recapitalisation is acquiring greater urgency, with the government showing determination to set the house in order at the earliest. 

On Thursday, the government sought Parliament approval for infusion of an additional Rs 41,000 crore in state-owned banks through the second batch of Supplementary Demands for Grants. 

That takes total recapitalisation for 2018-19 to Rs 1.06 lakh crore, up from Rs 65,000 crore. 


Finance Minister Arun Jaitley told reporters on Thursday that out of Rs 2.11 lakh crore announced earlier for FY18 and FY19, nearly Rs 42,000 crore are still to be deployed in PSU banks

Banking Secreatry Rajeev Kumar said the funds infusion will help 4-5 banks come out of RBI's PCA framework in 2018-19. 

The funds will be utilised under four different heads: 1) To help banks meet regulatory capital norms 2) Enable better performing PCA banks to get capital 3) Infuse funds into non-PCA banks that are closer to the red line and 4) Give regulatory and growth capital to banks that are being amalgamated. 

Prompt corrective guidelines are a set of rules that put operational constraints on banks high on bad loans. 


Recapitalisation of PSU banks is seen as a near term positive as it will help banks meet their provisioning needs, regulatory capital norms and fund growth. 

Of late, the news surrounding the government's recapitalisation drive has kept the lot of PSU banks in good spirits. Nifty PSU Bank has climbed as much as 9 per cent on the back of government support and possibility of a few banks exiting PCA set-up. 

Expectations of treasury gains have also cheered the stocks as the bond yield has eased nearly 30 bps in two weeks. Improvement in the bond space is largely because of easing liquidity pain, lower crude oil prices and expectations of a rate cut at the next RBI policy meet. 

Bank of India, a key bank that is reported to be exiting the PCA regime, is the top gainer in the PSU bank pack. 

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