Contact Your Financial Adviser Money Making MC
17
July 2018
 |
BANK
(The Total Investment & Insurance Solutions)
The
government is likely to recapitalise some state-run banks in urgent need by up
to Rs10,000 crore within a few days to help them meet regulatory capital
requirements, official sources said on Tuesday.
According
to the Finance Ministry sources here, these banks, which include the Punjab
National Bank (PNB), Corporation Bank and the Central Bank of India, are under
pressure to make interest payment to bond holders of their Additional Tier 1
bonds. The Total Investment & Insurance
Solutions
The
high accumulated non performing assets (NPAs), or bad loans, of banks and the
consequent provisioning for these, has hugely dented bank profits, while the
government has decided to recapitalise four-five banks which are facing
"acute shortage and risk breaching the regulatory capital
requirement", the officials said. The Total Investment & Insurance Solutions
The
fresh round of capital infusion of between Rs 8,000 and Rs 10,000 crore may
take place within this week, or latest by the next, in these public sector
banks (PSBs). The Total Investment & Insurance
Solutions
Last
October, the Union Cabinet approved a Rs 2.11 lakh crore recapitalisation plan
for PSBs. The Total Investment & Insurance
Solutions
In
January this year, the government notified the recapitalisation bonds to
allocate Rs 80,000 crore to 20 of these state-run banks. The bonds, split into
six instalments, bear interest rates between 7.35 per cent and 7.68 per cent
and will mature between 2028 and 2033.
The
State Bank of India (SBI) will receive the biggest share of capital from the
recapitalisation bonds, estimated at Rs 8,800 crore, followed by the IDBI Bank
at Rs 7,881 crore and the Bank of Baroda at 6,975 crore.
As
per the plan, PSBs are to get Rs 1.35 lakh crore through recapitalisation
bonds, and the balance Rs 58,000 crore through raising of capital from the
market. The Total Investment & Insurance
Solutions
The
NPAs in the Indian banking system have reached a staggering level of Rs 9 lakh
crore, while the bad loans of only the state-run banks add up to nearly Rs 8
lakh crore. The Total Investment & Insurance
Solutions
The
government has embarked on a two-pronged strategy on bad loans.
On
the one hand, it has brought in the Insolvency and Bankruptcy Code (IBC) which
provides for a six-month time-bound insolvency resolution process, and on the
other, it has adopted the recapitalisation plan to support the PSBs.
Commenting
on the development, Acuité Ratings & Research President-Ratings Suman
Chowdhury described the proposed fund infusion in PSBs as a significant
affirmative action which will assure the bank bond investors of continuing
government support. The Total Investment
& Insurance Solutions
"It
reinforces our belief that the government would continue to support the PSBs
particularly those under PCA (prompt corrective action) of the RBI and would
not allow regulatory capital breaches which might lead to defaults in hybrid
and perpetual instruments," Chowdhury said in a statement.The Total Investment & Insurance Solutions
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