Coming in support of weak and non-performing public sector banks (PSBs), the Finance Ministry has chalked out a turnaround-linked ₹8,586-crore capital infusion plan for 10 PSBs.
The capital allocation would be linked to quarterly milestones on which all related parties — Banks’ Board, management, employees and unions must commit, the Department of Financial Services has said.
The 10 banks identified are Allahabad Bank (₹418 crore); Andhra Bank (₹1,100 crore); Bank of India (₹1,500 crore); Bank of Maharashtra (₹300 crore); Central Bank of India (₹100 crore); Dena Bank (₹600 crore); IDBI Bank (₹1,900 crore); Indian Overseas Bank (₹1,100 crore); UCO Bank (₹1,150 crore) and United Bank of India (₹418 crore).
To avail themselves of the capital support, the identified PSBs require a tripartite Memorandum of Understanding (MoU) between the government, PSB management and employees of the PSB concerned.
This MoU is to commit all the participants to the agreement for a time bound plan beginning 2017-18 onwards with quantifiable and measurable milestones which can be monitored on quarterly basis, according to the Finance Ministry.
SBI Caps has been inducted to design detailed bank-wise plan based on which the tripartite agreement can be signed.
The indicative list of initiatives which will form part of the milestone under the MoU will include active NPA management and strengthening of credit underwriting and monitoring process; arranging capital from the market; continuing plan for disposal of non-core assets; divestment of subsidiary stake to closure of loss making domestic/international branches.
Another initiative is rationalisation and reduction of administrative, operating expenses including temporary restructuring of employees’ benefits (in case of need) which can be reversed as the bank manages to successfully turnaround.Capital roadmap
As per the Indradhanush roadmap announced in August 2015, the government had promised to infuse ₹70,000 crore in public sector banks over four years. At the same time, they will have to raise further ₹1.1 lakh crore from the markets to meet their capital requirement under Basel-III norms..
In line with this blueprint, PSBs were to get ₹25,000 crore in each fiscal, 2015-16 and 2016-17. Besides, ₹10,000 crore each were to be infused in 2017-18 and 2018-19.
Finance Minister Arun Jaitley had announced in his Budget speech a capital infusion of ₹10,000 crore for PSBs in 2017-18.Story this fiscal
The Centre has already announced fund infusion of ₹22,915 crore, out of the ₹25,000 crore earmarked for 13 PSBs for the current fiscal. Of this, 75 per cent has already been released to them.
The first tranche was announced in July this fiscal. The main objective was to enhance their lending operations and enable them to raise more money from the market.Unions’ view
Reacting to the new capital infusion plan, CH Venkatachalam, General Secretary, All India Bank Employees Association (AIBEA), said that bank unions are willing to commit to the betterment of the banks.
“So far the government has been infusing capital only for performing banks. We welcome the latest shift in government stance of providing capital support even to weak banks,” Venkatachalam told BusinessLine.
He said that bank unions are also in favour of the conditions being laid for ensuring performance of banks.
“We will wait for the fineprint of the MoU so that we can better understand the conditions that employees have to meet. It should also not be the case that entire burden has to be shouldered by employees. There has to be sacrifice by the managements too,” he said.
New Delhi: The finance ministry is working on the capital infusion strategy for public sector banks and an announcement to this effect will come soon, a senior finance ministry official said on Wednesday.
The funds infusion matrix as per the Indradhanush scheme is being given a final shape on the basis of representations from various banks for their capital needs, the official said.
Although the Indradhanus scheme has assigned Rs 10,000 crore for the current fiscal, it may prove insufficient due to high provisioning requirement for bad loan resolution through various processes, including insolvency and bankruptcy proceedings.
Last month, RBI Deputy Governor S S Mundra had said public banks may require more than the budgeted Rs 10,000 crore capital infusion from the government in the current fiscal on account of higher provisioning for bad loans and haircut on stressed assets.
The processes of NPA resolution and capitalisation are closely associated, Mundra said, adding that it appears banks may need additional capitalisation post the exercise.
The list of beneficiary will be announced soon and the capital infusion in the banks will take place in tranches as it happened last fiscal, the official who did not wish to be identified said.
Last year, the ministry provided capital to banks in two tranches. As many as 13 public sector banks together got Rs 22,915 crore in the first tranche announced in July 2016.
In the Budget speech on 1 February, Finance Minister Arun Jaitley announced capital infusion of Rs 10,000 crore for the current fiscal.
"In line with the Indradhanush road map, I have provided Rs 10,000 crore for recapitalisation of banks in 2017-18. Additional allocation will be provided, as may be required," Jaitley had said.
As per the scheme, public sector banks need to raise Rs 1.10 lakh crore from markets, including follow-on public offer, to meet Basel III requirements, which kick in from March 2019.
This will be over and above the Rs 70,000 crore that banks will get as capital support from the government. Of this, the government has already infused Rs 50,000 crore in the past two fiscals and the remaining will be pumped in by the end of 2018-19.
Published Date: Jul 19, 2017 19:46 PM | Updated Date: Jul 19, 2017 19:46 PM
Tags :#Bad Loan#Bank Recapitalisation#Capital Infusion#Finance Minister Arun Jaitley#Finance Ministry#Indradhanush#PSU Banks#Public Sector Banks#RBI