These PSU Banks to get Rs.8,655 crore for preferential allotment

The government has approved releasing Rs.8,655 crore to three public sector lenders -- Allahabad Bank, Indian Overseas Bank (IOB) and UCO Bank -- for preferential allotment of shares.

The Ministry of Finance has approved infusing fresh capital amounting to Rs.2,153 crore in Allahabad Bank, Rs.2,142 crore in UCO Bank and Rs.4,630 crore in IOB via for preferential allotment of shares.

Fresh capital infusion by the government is a part of the announcement made by Finance Minister Nirmala Sitharaman, in her maiden Budget on 5 July.

Sitharaman had first proposed a capital infusion Rs.70,000 crore in public-sector banks in two phases. First, banks were to subscribe to bonds floated by the government and in the second phase, the government was to infuse the money into these banks.

As of 20 November, the government had infused Rs.60,314 crore in public-sector banks of the total of Rs.70,000 crore that was announced for these banks.

At 12.16pm, the shares of Allahabad Bank were nearly 8% up at Rs.19.15 apiece. Shares of UCO Bank were higher by 3.6% and IOB nearly 9% at Rs.17.40 and Rs.12.25 , respectively.

All these three banks are currently under the Reserve Bank of India’s prompt corrective action (PCA) framework and their ability to exit the same will be driven by a reduction in net non-performing asset ratio to less than 6.0% and maintenance of capital conservation buffer, which further depends on the capital infusion by the government.

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Govt to infuse Rs 48,239 crore in 12 PSU banks

The government has approved recapitalisation of Rs 48,239 crore in 12 public sector banks, including fraud-hit Punjab National Bank.

It will pump Rs 6,896 crore in Allahabad Bank, Rs 4,112 crore in Union Bank of India, Rs 4,638 crore in Bank of India, Rs 205 crore in Bank of Maharashtra and Rs 9,086 crore in Corporation Bank.

The government will also put Rs 3,256 crore in Andhra Bank, Rs 1,603 crore in Syndicate Bank, Rs 5,908 crore in Punjab National Bank and Rs 2,560 crore in Central Bank of India.

The Centre will inject Rs 2,839 crore in United Bank of India and Rs 3,330 crore in UCO Bank.

The recapitalisation funds for 12 public sector banks have been divided in four categories. The first category is for bringing banks above the prompt corrective action (PCA) framework in which Allahabad Bank and Corporation Bank will get Rs 15,982 crore (33 per cent of total recap).

Second is for banks, which recently exited the PCA, in which Bank of India and Bank of Maharashtra will get Rs 4,843 crore (10 per cent of the total).

Rest will be divided in banks keeping them above the PCA limit and banks under the action.

The government will also infuse Rs 3,806 crore in Indian Overseas Bank.

“This is positive as it comes at a time when NBFCs are facing liquidity issue, and the capital will help some banks to be kept out of PCA so that lending can pick up and increase market share of public sector banks specially the recent banks which have exited PCA. We have BUY rating on Allahabad Bank, Bank of India and Oriental Bank of Commerce,”said Sameer Kalra - Equity Research Analyst at Target Investing.

The government in December had infused Rs 28,615 crore into seven public sector banks (PSBs) through recapitalisation bonds.

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Forget privatisation of PSB, Govt. has tied tight with another plan

The government has, over the years, received advice from numerous quarters to reduce its stake in public sector banks (PSU banks) to below 51%, so that these lenders have sufficient capital for growth. While the government has rejected this line of thought, it had itself talked of reducing its stake from existing levels to around 52% by allowing banks to raise equity capital from other sources. But things have gone in the opposite direction, as the chart below shows, with the government’s stake rising above 95% in one case.

This is a direct outcome of the unprecedented capital infusion the government has done after it committed to give R 2.11 trillion over two fiscal years to its struggling lenders under the PSU bank recapitalisation plan. In December, it upsized its commitment by another ₹ 41,000 crore, considering PSU banks weren’t able to raise money from the markets.

One may argue that the centre can’t be blamed, considering it did its job of helping the banks as the largest shareholder by infusing money. But from a minority shareholders’ perspective, the equity dilution has been immense in these banks, with the government having waited far too long to act on bank recapitalisation. While the government dragged its feet over recapitalisation, there was an erosion of market value and net worth of these banks. It too suffered as a shareholder due to the erosion. Now, it also finds itself in a situation where coming down to the desired 52% stake looks like a pipe dream.

Another fallout of the increase in government ownership is that these banks are now flouting minimum public shareholding norms set by the capital market regulator. This, in turn, has led to a slew of announcements by public sector banks to make large issuances under the employee stock option mode, with a view to meet these norms. Syndicate Bank, for instance, will issue as many as 300 million shares to employees, on an equity base of 1.6 billion shares.

Part of the capital infusion in FY18 was done through recapitalisation bonds. In this route, the government issues bonds to banks and uses the proceeds to buy their shares to infuse capital. This route was frowned upon since the banks ended up shifting money from their investment book to their capital base.

The government in its rescue mission has increased its hold on banks in direct contrast to what it had promised in 2014. Recall that when the current government was formed a slew of banking reforms were promised, one of which was to bring down the centre’s stake in the banks it owns.

Source- Livemint

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Govt mulls additional capital infusion in five PSU banks

The government is considering additional capital infusion of up to Rs 30,000 crore in public sector banks as they have been unable to raise required funds from the markets, sources said.

As part of the capital infusion plan announced by the Finance Ministry in October 2017, the government envisaged that public sector banks (PSBs) would raise Rs 58,000 crore from the stock markets by March 2019 to meet Basel III norms.

However, due to subdued market conditions, banks have been unable to raise enough funds from the markets so far.

In addition, non-performing assets of many banks have seen a spurt in the first two quarters of this fiscal, putting stress on their bottomlines.

However, the banks have got a breather in respect of Capital Conservation Buffer (CCB), a part of Basel III norms. The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 37,000 crore in the hands of banks.

Despite this relaxation, PSBs need more funds to meet global capital norms called Basel III as the RBI has retained the capital to risk weighted assets ratio (CRAR) at 9 percent, sources said, adding, the shortfall could be around Rs 30,000 crore.

However, sources said the matter is being considered by the government and the final decision is expected in the next few weeks.

The government had decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth. This entailed mobilisation of capital to the tune of about Rs 2,11,000 crore over the next two years -- through budgetary provisions of Rs 18,139 crore, recapitalisation bonds of Rs 1,35,000 crore, and the balance through raising of capital by banks from the market while diluting government equity estimated at Rs 58,000 crore.

As per this plan, the remaining capital infusion is about Rs 42,000 crore.

Earlier this year, the government pumped in Rs 11,336 crore into five PSBs -- PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank -- to improve their financial health.

PNB, hit by the Nirav Modi scam, got the highest amount of Rs 2,816 crore, while Allahabad Bank received Rs 1,790 crore. Andhra Bank got capital support of Rs 2,019 crore, Indian Overseas Bank Rs 2,157 crore and Corporation Bank Rs 2,555 crore.

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Govt to infuse Rs 28,615 cr in 7 PSBs soon

The government is likely to infuse Rs 28,615 crore into seven public sector banks (PSBs) through recapitalisation bonds by the end of this month, sources said on Thursday.

The amount infused will help the banks meet regulatory capital requirement, and its disbursement might take place before December 31, sources said.

Out of these seven PSBs, Bank of India is likely to get the highest amount of Rs 10,086 crore, followed by Oriental Bank of Commerce, which might get Rs 5,500 crore through recapitalisation bonds, sources added

Other banks that are likely to receive capital infusion in this round included Bank of Maharashtra which may get Rs 4,498 crore, UCO Bank (Rs 3,056 crore) and United Bank of India (Rs 2,159 crore).

The government had earlier announced an infusion of Rs 65,000 crore in PSBs in 2018-19, of which Rs 23,000 crore has already been disbursed, while Rs 42,000 crore is remaining.

Earlier this month, Finance Minister Arun Jaitley said the government would put an additional Rs 41,000 crore in PSBs over and above what was announced earlier.

On December 20, the government sought Parliament’s approval for infusion of an additional Rs 41,000 crore. The recapitalisation, the finance minister said, would enhance the lending capacity of PSBs and help them come out of the Reserve Bank of India’s Prompt Corrective Action (PCA) framework.

Eleven out of the total 21 PSBs are under the RBI’s PCA framework, which imposes lending restrictions on weak banks.

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.

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These banks will be major beneficiaries of Modi govt’s capital infusion

Banks such as the Punjab National Bank, Corporation Bank, Bank of Maharashtra, Allahabad Bank and Bank of India may be major beneficiaries of the government’s enhanced capital infusion plan.

The Modi government has moved to provide additional capital to weak banks after failing to make headway with the Reserve Bank of India over the relaxation of restrictions placed on these banks under the Prompt Corrective Action (PCA) norms.

Finance Minister Arun Jaitley Thursday announced that the government will infuse an additional Rs 41,000 crore of capital into state-run banks, over and above the budgeted amount of Rs 65,000 crore in the fiscal year 2018-19.

With only part of the infusion done so far, more than Rs 83,000 crore of capital will be infused in some state-run banks by the next quarter.

Apart from PNB, the other banks are among the 11 that are under the RBI’s PCA framework. The PNB, hit by the massive Rs 14,000 crore Nirav Modi fraud, has key parameters such as capital adequacy ratio under severe pressure forcing the government to infuse capital to prevent the lender from being pushed into the PCA framework.

Infusion to aid weak banks

The capital is aimed at meeting regulatory capital norms, providing capital to better performing PCA banks to ensure that their key metrics like net NPAs and capital adequacy ratio are well above the regulatory norms so as to facilitate their exit from the framework and to ensure that other banks don’t slip into it, Jaitley said.

Secretary, financial services, Rajiv Kumar said the aim is to help at least four to five banks move out of the PCA framework.

The government contends that the removal of lending restrictions will help in improving the credit flow to important sectors of the economy including the politically important constituency of micro, small and medium enterprises.

The relaxation of the PCA framework has been a major point of difference between the government and the RBI. In its 19 November meeting, the government had argued that the RBI’s PCA framework is far stricter than the global norms.

For instance, RBI takes into account net NPAs as well as negative returns on assets besides capital adequacy to determine if a bank should be placed under the PCA framework, unlike other countries that only look at capital adequacy.

The RBI, however, had defended its stance arguing that restrictions on lending are helping the weak banks strengthen their balance sheet. The matter was eventually referred to the board of financial supervision headed by the governor.

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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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Govt pumps Rs 3054 cr into one of the PSB

Allahabad Bank on Thursday said the government had infused Rs 3,054 crore into the state-run lender.

“In terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, we wish to inform you that the bank has received a communication from the Government of India, Ministry of Finance, Department of Financial Services regarding fresh capital infusion of Rs 3054 crore towards contribution of the central government in the preferential allotment of equity shares (special securities/bonds) of the bank during financial year 2018-19, as government’s investment,” Allahabad Bank said in a notification to the BSE.

The bank had posted a June-quarter loss of Rs 1,944 crore against a profit of Rs 28.8 crore a year ago. The interest earned by the bank during the first quarter stood at Rs 4,600 crore, compared with Rs 4,148 crore in the same period of the previous fiscal.

Provisions and contingencies rose to Rs 2,763 crore during the April-June quarter, from Rs 1,335 crore in the year-ago period. Provisions for non-performing assets (NPAs) during the quarter came in at Rs 2,950 crore versus Rs 1,687 crore a year ago. Gross NPAs stood at 15.97% of the total advances against 15.96% in the previous quarter, while net NPAs were at 7.32% against 8.04%.

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Government's bank recapitalisation plan actually working?

Public sector banks (PSBs) have played a pioneering role in developing India's industries, but recent evidence suggests they are being shortchanged. Large infrastructure projects have been bogged down by legacy issues, regulatory overreach, and negligence on the part of banks, which has only led to the pile of bad debt becoming bigger.

The rise in the level of non-performing assets (NPAs) has consequently led to more public money being injected into government banks to meet capital requirements. Provisioning for bad loans has impacted their profitability and growth. Private banks have been relatively more successful than their state-run counterparts in leveraging market forces to raise capital.

The gross NPA ratio of scheduled commercials banks rose from 10.2 percent at the end of September 2017, to 11.6 percent at the end of March 2018. Private banks fared much better during the period under review with an NPA ratio of only 4 percent; PSBs gross NPA ratio at the end of the period was 15.6 percent.

The government had formulated the 'Indradhanush' plan in August 2015 to resolve the issues faced by PSBs, and make them more competitive vis-à-vis private banks. The seven-pronged action plan to revamp PSBs identified both structural and policy issues that were holding back these institutions from living up to their mandate.

On the structural side, governance issues, NPAs, and a homogenous credit base have held back state-run banks. The Indradhanush plan estimated that recapitalisation to the tune of Rs 1.8 lakh crore was needed to nurse these banks back to health.

This amount was to be released in a staggered manner, spread over four years. Of the total, Rs 70,000 crore would be infused into banks by the government, while the remaining Rs 1,10,000 crore would have to be raised by banks. The government has already injected Rs 59,435 crore of the total in public banks, with the residual amount to be raised through budgetary provisions.

In January 2018, the government mooted a front-loaded bank capitalisation plan of Rs 2.11 lakh crore to augment the Indradhanush plan. Of the total, Rs 1.35 lakh crore was to be infused through sale of recapitalisation bonds, while the rest would come from budgetary provisioning and through funds raised from the market.

Public banks have been the beneficiaries of government aid, especially since the market liberalisation reforms of 1991. Union budgets presented in the last five years have earmarked money for bank capitalisation, of which Rs 83,504 crore has been spent. However, the budgetary provision for FY18 was Rs 90,000 crore, much more than the expense incurred over the last five years.

The diversion of public funds for keeping state-owned banks afloat is indicative of the systemic flaws that have culminated in mounting bad debt and over-leveraged balance sheets. Institutions like Life Insurance Corporation of India (LIC) have also been used as surrogates to stave off crisis in these banks.

The quantum of direct government support to the banking sector has increased by over 450 percent over the last four fiscal years, from Rs 15,504 crore in FY14 to Rs 86,510 crore in FY18. For the current financial year, Bank of India received the most government aid, having received at Rs 9,232 crore. It was followed by State Bank of India (SBI), which received Rs 8,800 crore.

The capital infusion by the government is broadly in line with the net losses reported by state-run banks. Of all the PSBs in the country, only Indian Bank and Vijaya Bank recorded profits in FY18. Cases of financial fraud, most notably, the one orchestrated by Nirav Modi and Mehul Choksi, pulled down the performance of Punjab National Bank, which recorded a loss of Rs 12,283 crore, the highest among PSBs. In FY18, SBI and its associates received Rs 8,800 crore in cash from the government, while recording a loss of Rs 5,339 crore for the year.

Of the 21 public banks in operation, 19 reported losses this year, resulting in numerous calls for their privatisation.

Despite the government having increased its allocation for recapitalisation of these banks by a not-so-modest amount, they are still being found wanting. Their gross NPA ratios have swelled in the recent past, with IDBI Bank reporting a GNPA ratio of 27.95 percent at the end of the June quarter, up from 24.11 percent as at the end of the same quarter last year.

The same is true in the case of United Bank of India, whose GNPA ratio rose by almost 7 percentage points over the past year. PNB's bad loans also spiked, with GNPA ratio increasing to 18.38 percent of its asset base.

Factoring in possible losses from restructured assets and additional provisioning, it would be safe to assume that more money will be need to be pumped in to ensure that public banks meet capital adequacy norms.

Source- Moneycontrol

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PNB and other PSBs may get Rs 8,000 crore lifeline

The government may infuse about Rs 8,000 crore in five or six state-run banks that are likely to fall short of regulatory capital requirements, a senior finance ministry official said. These banks may include Nirav Modi scam-hit Punjab National Bank. 

“There are some banks that have issued additional tier 1 capital bonds and the interest payments are due. Now if they don’t meet the regulatory capital norms, they will not be allowed to make such payments,” the official said. The government cannot allow public sector banks to default on such payments, which will impact their rating, the official said. 

Banks raise capital through AT1 bonds, which are perpetual in nature and therefore provide higher interest rates to investors. A high level of bad loans and widening losses have made it difficult for banks to service these bonds, raising the risk of default. 

Some banks that came under the Reserve Bank of India’s prompt corrective action (PCA) framework will also benefit from this tranche of capital infusion, said another official. The PCA framework is meant to encourage banks to avoid certain riskier activities and focus on conserving capital so that their balance sheets can become stronger. 

“These banks had issued upper tier II bonds and the interest payments are also linked to statutory capital ratios. We are doing an assessment of their requirements,” the official added. 

Earlier this year, the government had asked banks under PCA to recall AT 1 bonds. Lenders that have recalled these instruments include Oriental Bank of Commerce and Bank of Maharashtra. 

Despite recapitalisation, of the 15 public sector banks that have declared their results for FY18, the tier 1 capital position reported by only five is close to the minimum regulatory requirement of 7%, according to a recent report by rating company ICRA. 

“The coupon servicing ability for these weak banks is now contingent on their ability to raise capital immediately before their coupon payment due dates,” the report had said. Public sector banks had Rs 63,595 crore of such debt capital instruments as of April 1, of which Rs 25,831crore was issued by 11banks currently under PCA, ICRA said. 

In January, the government announced Rs 88,000 crore of capital support to 20 state-run banks for FY18 while prescribing a reforms package to make them more accountable. 

Of this amount, Rs 80,000 crore was through recapitalisation bonds and Rs 8,139 crore as budgetary support, while banks were to raise Rs 10,312 crore from the market. 

The infusion is part of a Rs 2.11lakh crore plan announced last October. The government will provide Rs 1.35 lakh crore through recapitalisation bonds, while banks will need to raise Rs 58,000 crore on their own. 

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Recapitalisation scheme for Regional Rural Banks(RRB) extended

The Union Cabinet on Wednesday extended the recapitalisation scheme for "Regional Rural Banks" (RRBs) for the next three years. 

"This will enable the RRBs to maintain the minimum prescribed capital to risk weighted assets ratio (CRAR) of 9 per cent," the Cabinet said in a statement. 

"A strong capital structure and minimum required level of CRAR will ensure financial stability of RRBs which will enable them to play a greater role in financial inclusion and meeting the credit requirements of rural areas." 

Currently, there are 56 RRBs in the country. On provisional basis, as on March 31, 2017, the total credit given by RRBs is Rs 228,599 crore. 

The scheme was started in FY2010-11 and has been extended twice in the year 2012-13 and 2015-16. The last extension was up to March 31, 2017. 

A total amount of Rs 1,107.20 crore, as the Indian government's share, out of Rs 1,450 crore, has been released to RRBs up to March 31, 2017, the statement said. 

"The remaining amount of Rs 342.80 crore will be utilised to provide recapitalisation support to RRBs whose CRAR is below 9 per cent, during the years 2017-18, 2018-19 and 2019-20." 

As per the statement, the identification of RRBs which require recapitalisation will be decided in consultation with the National Bank For Agriculture And Rural Development. 

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Government infuse over Rs. 88,000 cr in PSU banks,Which bank gets how much amt?

The government will infuse more that Rs88,000cr into public sector banks in FY18 itself, as a part of its Rs2.11lakh crore recapitalization plan to boost the capital of state owned banks.

The capital infusion plan for 2017-18 includes Rs80,000cr through Recap Bonds and Rs8,139cr as budgetary support. This plan addresses regulatory capital requirement of all PSBs and provides a significant amount towards growth capital for increasing lending to the economy.

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Government of India provided capital to six Public sector Banks

The government has provided over Rs 7,757-crore fresh equity to six stressed state-run banks to help them meet the prescribed regulatory capital requirement and state its commitment to keep banks well-funded.

Bank of India, IDBI Bank, Uco Bank, Bank of Maharashtra, Dena Bank and Central Bank of India have received equity through preferential issue of shares with two of them informing stock exchanges about the decision.

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