Finance Ministry to take call on capital infusion in PSU banks after September

The Finance Ministry will review the capital infusion requirements of PSU banks after September and there will be separate allocation for recapitalisation in the general Budget likely to be presented in July. Sources said the interim Budget did not have the provision for any recap from April to July as the banks were adequately capitalised till September.

According to official sources, by September (end of second quarter), the capital position with regard to the regulatory requirements and growth of all the PSU banks which received funds in 2018-19 will be clear. 

The remaining PCA (Prompt Corrective Action) banks will also require fresh funds to come out of the Reserve Bank of India`s (RBI) framework for weak banks. But for this, the banks would have to match the performance parameter targets required for PCA removal and would have to show improved performance.

In 2017, the government announced its Rs 2.11 trillion PSU bank recapitalisation plan, in which Rs 1.35 trillion was to come from the sale of recapitalisation bonds and the remaining Rs 76,000 crore through the Indradhanush plan (Budgetary allocation) and fund raising from the markets by non-core assets sales.

The bank recapitalisation package saw a sharp increase over the budgetary allocation.

In February 2019, the government had announced capital infusion of Rs 48,239 crore into 12 public sector banks to help them maintain regulatory capital requirements and finance growth plans. 

Before that in December 2018, the Finance Ministry had increased capital infusion into these banks for FY19 by a combined Rs 41,000 crore to Rs 1.06 lakh crore from the originally planned Rs 65,000 crore.

Now the entire recap amount has been exhausted. After the removal six banks from the PCA framework, Central Bank of India, IDBI Bank, Indian Overseas Bank, UCO Bank and United Bank of India remain under the PCA now.

Moody`s Investors Services had recently said that a complete turnaround of the banks was still away due to their large quantum of legacy bad loans.