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Banking

Government May Soon Infuse Rs 10,000 Crore In State-Owned Banks

Capital is required for these banks as they are saddled with non-performing assets or bad loans of about Rs 10 lakh crore.

New Delhi: The finance ministry is likely to infuse about Rs 10,000 crore within a few days in some state-owned lenders including Punjab National Bank, Corporation Bank and Central Bank of India, to help them meet regulatory capital requirement, sources said.

Some of these banks have come under pressure because of interest payment to their bond holders of additional tier 1 (AT-1) bonds, they said.

As a result, these banks were facing the risk of breaching the regulatory capital requirement, sources said, adding that the ministry has decided to provide capital to four-five banks which are facing “acute shortage”.

Banks raise capital through AT-1 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 from their own earnings.

The sources said that capital infusion may take place this week itself or latest by next week. The infusion would be part of remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion over two financial years.

The new round of infusion will be between Rs 8,000 and Rs 10,000 crore, sources said.

The government announced a Rs 2.11 lakh crore capital infusion programme October last year. As per the plan, the public sector banks were to get Rs 1.35 lakh crore through re-capitalisation bonds, and the balance Rs 58,000 crore through raising of capital from the market.

Out of the Rs 1.35 lakh crore, the government has already infused about Rs 71,000 crore through recap bonds in the banks and balance would be done during this financial year.

Besides, public sector banks are also planning to tap the markets to raise more than Rs 50,000 crore this financial year to shore up their capital base for business growth and meeting regulatory global risk norms.

Capital is required for these banks as they are saddled with non-performing assets or bad loans of about Rs 10 lakh crore. Out of 21 public sector banks, 13 have already taken the approval of their boards or shareholders for raising capital through the equity market. The combined value of the share sales of these banks is upwards of Rs 50,000 crore.

Leading the pack is the Central Bank of India, which has already got shareholders’ approval for raising Rs 8,000 crore equity capital through various means, including a follow-on public offer, rights issue or a qualified institutional placement (QIP), to shore up its capital base.