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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