Govt infuses Rs 48,239 crore in Public Sector Banks
The fresh round recapitalisation of 12 state-run banks is positive as it will help them improve their core capital but a complete turnaround is still away due to the large quantum of legacy bad loans.
The government on 20 Feb 19 decided to recapitalise 12 public sector banks with Rs 48,239 crore. Rajeev Kumar, Secretary, Department of Financial Services, Ministry of Finance tweeted the announcement.
The banks which will receive funds under the recapitalisation plan of the government are Allahabad Bank which will receive Rs 6,896 crore, Union Bank which will receive Rs 4,112 crore, Bank of India will receive Rs 4,638 crore, Bank of Maharashtra will receive Rs 205 crore, Corporation Bank will receive Rs 9,086 crore, Andhra Bank to receive Rs 3,256 crore, Syndicate Bank to receive Rs 1,603 crore, Punjab National Bank to receive Rs 5,098 crore and Central Bank of India to receive Rs 2,560. The government will also infuse Rs 2,839 crore in United Bank and Rs 3,330 crore in UCO Bank.
A key hindrance to a faster turnaround of these banks is the slow progress in the resolution of legacy bad loans and the need to build up provisions against those assets.
Although the resolution process at bankruptcy courts (NCLTs) has been initiated for most large NPA accounts, progress has been slower than we anticipated, and a complete cleanup of legacy problem loans could take more than two years.
It said farm loan waivers, which three states have granted since November 2018, are a risk because these measures can incentives borrowers to not repay their loans, contributing to more bad loans in the agri lending books.
The report further said the fresh capital will enable banks to use operating profit to significantly boost provisions for bad loans. It expects state-run banks’ capital shortages to shrink substantially in FY20 as their asset quality improves, which will lead to declines in credit costs and gains in profitability.
The state-run banks will require a total of about Rs 20-25,000 crore in external capital in FY20 to maintain CET1 ratios of about 8.5 percent.
Banks are expected to cut lending rates by 50 bps by March 2020 reversing the 30 bps hike in 2018.
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