Bank’s final stage capital injection could take shape in Q4

NEW DELHI : The government is proposing to recapitalize public sector banks (PSBs) that have emerged from the Reserve Bank of India (RBI) Quick Corrective Action (PCA) framework and may need additional funds to strengthen their accounts, two said. responsible.

The Ministry of Finance will finalize the last round of capital injection for PSBs early next year and review the requirements of each bank, especially the weaker ones that are still on BCPs or have recently been phased out. they added.

PSOs were invited to provide their own funds requirements after the finalization of the accounts for the third quarter of FY22. Based on the requirements, the Ministry of Finance will decide the amount of capital for each bank.

The budget for fiscal year 22 had allocated ??20,000 crore for the recapitalization of the banks, but a large part remains to be disbursed. It should be released in the fourth quarter. Allocations for bank recapitalization may not be a priority in the budget for fiscal year 23 and lenders may be encouraged to tap the markets as the government believes that the financial health of PSBs shows signs of improvement. and that they are able to raise funds from the market, officials said.

Questions to the Ministry of Finance remained unanswered until going to press.

Banks’ capital requirements will be reviewed in the next quarter, before infusing money to meet regulatory needs. Particular attention will be paid to requests from weak banks emerging from the PCA to ensure that they can further strengthen their finances and start expanding their lending services, they added.

In September, RBI removed UCO Bank and Indian Overseas Bank from the PCA framework following improvements in various parameters and a written commitment that public lenders would meet minimum capital standards. Now only the Central Bank of India remains subject to the PCA, which is triggered when lenders violate certain regulatory requirements such as return on assets, minimum capital and amount of non-performing assets.

The capital needs of banks could be prioritized when announcing the next round of capital injection. The recapitalization should help lenders move faster in strengthening their finances.

Out of ??20,000 crore allocated to five public sector banks under the PCA in fiscal year 22, ??11,500 crore was paid to three banks: UCO Bank, Indian Overseas Bank and Central Bank of India.

The government has infused over ??3.15 trillion in PSBs over the 11 years to 2018-19. In FY20, ??70,000 crore was injected to help PSBs provide credit to industry and help the economy revive.

Indian banks have so far raised more than ??37,000 crore by issuing additional level I bonds (AT1) during fiscal year 22. Call options for AT1 bonds with a value of ??28,430 crore is due in FY 22, addressing concerns about rollovers and capital ratios.

In addition, PSB’s net profit jumped to ??14,012 crore in the first quarter, and increased further to ??17,132 crore during the quarter ended September.

The combined profit for the first half of the current financial year is close to the total profit realized in financial year 21, when the PSBs had raised ??58,697 crore, the highest amount raised during a financial year.

The PSO capital adequacy ratio (CAR) increased to 14.3% at end-June 2021, while the provision coverage ratio reached an eight-year high of 84%. Most of the non-productive assets of PSOs are now properly provisioned.

Even the NPAs have gone from ??678,317 crore on March 31, 2020, at ??616,616 crore as of March 31, 2021, based on provisional data. On an aggregate basis, public banks recorded a profit of ??31,816 crore, the highest in five years, despite the economy shrinking 7.3% in 2020-21 due to the covid-19 pandemic.

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