Some public lenders, with high NPAs, were on the verge of breaching minimum capital norms
The Centre has released the much-required equity capital to six stressed public sector banks (PSBs) as some of these lenders were on the verge of breaching minimum capital norms on December 31, 2017.
The PSBs are Bank of India (₹2,257 crore), Central Bank of India (₹323 crore), Dena Bank (₹243 crore), IDBI Bank (₹ 2,729 crore), Bank of Maharashtra (₹650 crore) and UCO Bank (₹1,375 crore). These lenders would be asked to improve on parameters such as bad loans and recovery to which effect a communication would be sent shortly.
According to bankers, some of these lenders could have breached the minimum regulatory capital requirement, as mandated by the RBI, at the end of the third quarter. “By infusing capital, the government wants to give a strong signal to the public that it will not allow its banks to go down,” said a senior banker from a PSB.
Banks are mandated to maintain minimum 9% capital adequacy ratio (CAR) plus a capital conservation buffer of 2.5%. Within the CAR, minimum common equity tier-I (CET 1) capital ratio is prescribed at 5.5%. The Kolkata-based UCO Bank has informed stock exchanges that the Centre, in its letter dated December 28, ‘communicated its sanction for release of ₹1,375 crore towards preferential allotment of equity shares.’ IDBI Bank has also informed the exchanges about the capital infusion.
According to latest RBI data, capital adequacy ratio of PSBs as on September 30 was 12.2% while the CET 1 ratio was 4.7%. UCO Bank, for example, had a CET 1 of 6.64% and gross non-performing asset ratio of 19.74% as on 30 September.
All these banks are saddled with huge non-performing assets and are under the prompt corrective action (PCA) framework of the Reserve Bank of India — which means certain operations of these banks have been curtailed by the regulator.
There were rumours circulated on social media, after PCA was imposed on banks, that due to poor financial health, some of them could be closed down. Both, the RBI and the Centre, strongly denied these claims.
While the RBI clarified that PCA was imposed to encourage banks eschew certain riskier activities and focus on conserving capital, Financial Services Secretary Rajiv Kumar also tweeted recently saying there was no question of closing down any PSB and added the Centre was strengthening its banks by infusing capital.