Economy

Will bank recapitalisation succeed?

Will bank recapitalisation succeed?

As Jaitley pointed out, the objective of the exercise is to keep the PSBs in good health, a prime responsibility of the government.

Rajeev Kumar, secretary, department of financial services, said bank recapitalisation is dependent on performance and reforms undertaken by the lenders.

As per the plan, State Bank of India will get Rs 8,800 crore capital and Bank of India, Rs 9,232 crore in fiscal ending this year.

It announced that Rs 1,35,000 crore would be infused through recapitalisation bonds, which would be issued by the government and would be subscribed by public sector banks in lieu of the capital they get from the government.

There was no relief for IDBI Bank, the biggest gainer of the cash infusion as its shares fell around a per cent. The government has also mandated each of the PSBs to have a stressed assets management vertical and monetise their non-core assets such as real estate to boost their capital adequacy.

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

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"As far as we are concerned, we are adequately capitalised at this point in time and don't really need the capital", said P.K. Gupta, Managing Director of State Bank of India.

Analysts had said mandating reforms would be critical to prevent banks from engaging in the same indiscriminate lending that led to the current problems. "Secondly, capital infusion will enable us to make provisions and thereby reduce net NPA, which has been one of the triggers for PCA", the IDBI Bank official said. "The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision", Jaitley said. He said, stringent norms for disbursal of high value loans have been framed, with strict surveillance on big loan defaulters and mandatory reporting of loans of over 250 crore rupees.

"The bonds are not likely to have statutory liquidity ratio (SLR) status".

The Government on Wednesday spelled out new banking roadmap and once again reiterated that the depositors money in the banks are safe.

UCO Bank will get Rs 6,507 crore; Punjab National Bank - Rs 5,473 crore; Bank of Baroda - Rs 5,375 crore; Central Bank of India - Rs 5,158 crore; Canara Bank - Rs 4,865 crore; Indian Overseas Bank - Rs 4,694 crore and Union Bank of India - Rs 4,524 crore.

Nifty PSU Bank shed almost 2 per cent with the Indian Bank (down 3.6 per cent), Punjab National Bank (down 3 per cent), Bank of Baroda (down 2.9 per cent) and State Bank of India (down 2.3 per cent) contributing most to the losses on the NSE.


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