26 January, 2018
Bank will now have to be more careful about consortium borrower and all loans above Rs 250 crore will need special monitoring.
As part of its recapitalisation roadmap, the finance ministry said on Wednesday that Rs 88,139 crores will be infused into 20 public sector banks in 2017-18, including Rs 80,000 crores through recapitalisation bonds and Rs 8,139 crores as budgetary support. The government has made a decision to give Rs 8,800 crore to the SBI, Rs 5,375 crore to Bank fo Baroda, Rs 4,865 crore to Canara Bank and Rs 4,524 crore to Union Bank among various other PSBs. "There is not going to be a public issue", Garg said.
In contrast, the earnings of private-sector banks have deteriorated significantly in recent years but still enjoy buffers that can withstand moderate amounts of stress.
Finance Minister Arun Jaitley said the government wants to build an "institutional mechanism" to ensure that problems that his government inherited do not recur.
Yet, not everyone is convinced that these measures are enough. Recapitalisation of banks under the PCA framework will allow them to reduce the NPAs as well as improve capital ratios.
Analysts said that the injections were just one step in the long process to clean up India's bad debt, and that the lenders' final capital position will also depend on how they undertake the central bank's directive to take almost 40 large corporate loan defaulters to bankruptcy proceedings, which will likely involve haircuts on their loans.
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According to ICRA's estimates the current capital allocation is based on the capital ratios and the NPA levels of individual banks and ability of these banks to absorb credit losses from their operations.
Ahead of the announcement on Wednesday, the markets had factored in a larger share of the near Rs 90000-cr recapitalisation money for the stronger banks.
The generous capital given to stressed banks will help them wriggle out of the regulator's stifling prompt corrective action and brighten prospects of raising fresh funds with better ratings to clean their books, officials and analysts said.
The bank recapitalisation plan revealed yesterday would focus "sharply" on increasing bank lending to the micro, small and medium enterprise (MSME) sector, Ministry of Finance has said. Nomura calls the plan a "game-changer", whereas Morgan Stanley calls it a good allocation of capital as it provides higher amounts of capital to banks with weaker capital and profitability.
"In case of PCA banks, they should be able to reach the regulatory capital requirement".
Another challenge for banks is the new accounting standards (Ind-AS 109) which could come into effect from the fiscal beginning April 1, 2018. UCO Bank was up 5.7 per cent, United Bank of India rose 1.4 per cent and Indian Overseas Bank was up 1.7 per cent.