Decks are being cleared for capital infusion of Rs 7,577 crore into six weak public sector banks (PSBs) — which are reeling under huge bad loans — as part of the government’s recapitalisation plan to clean their balance sheets.
The boards of three banks on Wednesday approved the recapitalisation plan. “We inform that we have this day received the approval of board of directors of the bank by circulation for the proposal to issue of equity shares on preferential basis to government of India against capital contribution of Rs 1,375 crore subject to necessary approval,” UCO Bank said in a stock exchange filing.
In a stock exchange filing, Central Bank of India said the Capital Raising Committee of the board has approved the preferential allotment of Rs 323 crore at a premium of Rs 73.15 to the government. In a statement, Bank of Maharashtra said the board of directors has approved preferential allotment of shares of Rs 650 crore to the government subject to the relevant approvals.
Besides, the government has also decided to infuse Rs 2,257 crore in the Bank of India, Rs 2,729 crore in IDBI Bank, and Rs 243 crore in Dena Bank. Apart from their respective boards, these banks will have to get the approval of shareholders in general body meetings.
The recapitalisation is under the Indradhanush plan of the government which promised Rs 70,000 crore over period of four years ending March 2019. While the government decides the mode for recapitalisation of all state-run banks, it advanced the release of funds to these six banks to help them meet their equity requirements and enable them to resume normal business and help them come out of prompt corrective action (PCA) of the Reserve Bank of India.
The RBI initiates PCA when a bank falls short of certain regulatory requirements such as minimum capital, returns on asset and size of non-performing assets. In April, the RBI said that capital, asset quality and profitability would be the basis for the PCA framework on which the banks would be monitored and has defined three kinds of risk thresholds.
“The PCA framework would apply without exception to all banks operating in India, including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators,” the RBI had said.
The RBI can ask the banks to prepare a time-bound plan and commitment for reduction of NPAs, restrict or reduce credit expansion for borrowers below certain rating grades or unrated borrowers, unsecured exposures, loan, concentration of loans in identified sectors or borrowers.
In October 2017, finance minister Arun Jaitley had announced an unprecedented Rs 2.11 lakh crore two-year recap plan to strengthen the PSU banks which reeling under high non-performing assets (NPAs). The plan includes floating recapitalisation bonds of Rs 1.35 lakh crore and raising Rs 58,000 crore from the market by diluting government’s stake.
The government is working on the modalities for issuing the recapitalisation bonds as it aims to front-load the infusion with an aim to strengthen the state-owned banking sector. Banks would get about Rs 18,000 crore under the Indradhanush plan over the next two years.