Banks under prompt corrective action (PCA) and continuously making losses with higher non-performing assets are unlikely to get capital in the first phase of bank recapitalisation in the current financial year, a top finance ministry official said on Wednesday.
“Banks which have been making continuous losses and have no internal discipline and have higher non-performing assets won’t be given capital this financial year,” the official told TickerNews.
Banks under PCA are also unlikely to get capital as the Reserve Bank of India (RBI) has already put many restrictions on their activities like lending, hiring and expanding branches, due to which they don’t need immediate capital for lending, added the official.
Currently, 12 banks have been placed under PCA.
Earlier this month, RBI governor Urjit Patel said that the government would infuse capital in banks in consultation with the regulator.The capital infusion will favour banks which have managed their balance sheets more prudently and the recapitalisation bonds will be front-loaded for banks which are able to use the capital to expand lending.
The other banks will receive government contribution based on their effort and progress towards reform in a significant and time-bound manner, such as becoming slim and trim by adoption of better and focussed business strategies as also possibly, non-core asset sales,” Patel told reporters after the monetary policy committee meeting.
The finance ministry official said the government has asked PSBs to submit presentations as to how much capital they need and the reason to substantiate that. Many banks have submitted the detailed presentations to the finance ministry.
“The government will consolidate the presentations given by banks and give that to SBI capital to decide on how much capital to be infused in which bank. Many banks have submitted their presentations,” another finance ministry official said.
According to the official, capital infusion conditions will differ from bank to bank. However, banks with less capital adequacy ratio will be on government’s priority so that their international businesses don’t get hampered.
In October, finance minister Arun Jaitley announced a Rs 2.11 lakh crore bank recapitalisation plan for state-run banks out of which Rs 1.35 lakh crore is to be infused as bonds, the details of which are being finalised.
Lenders are expected to raise Rs 58,000 crore from stake sale and the remaining Rs 18,139 crore will be infused via budgetary support.
The government is working on modalities of recapitalisation bonds and is likely to make announcement in mid-January, according to the finance ministry officals.
With regard to merger and consolidation of state-run banks, the official said, though the government is pushing for it but it is unlikely to materialise in fianancial year 2018 as lot of formalities and study would get into the whole process.