FinMin revises criteria for recapitalisation of PSBs

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State-owned banks looking forward to the next round of capital infusion will need to fulfill a new set of criteria, including credit recovery, as the finance ministry has revised the recapitalisation norms.

The second tranche of capital allocation for the current fiscal would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets, sources said.

Only those lenders that fulfil the criteria post third quarter (October-December) results of the current fiscal will be eligible for the second round of funding, sources added.

The money was allocated last fiscal on the twin principles of ensuring 7.5 per cent common equity tier 1 (CET 1) at the end of the 2016 and growth capital to five major banks.

The government in July had announced the first round of capital infusion of Rs 22,915 crore for 13 banks.

“75 per cent of the amount (Rs 22,915 crore)…Is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” the finance ministry had said in a statement.

“The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations,” it had said.

The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market.

Out of the Rs 22,915 crore, State Bank of India (SBI) was provided Rs 7,575 crore followed by Indian Overseas Bank (Rs 3,101 crore) and Punjab National Bank (Rs 2,816 crore).

The other lenders, which have got commitment of capital infusion are Bank of India (Rs 1,784 crore), Central Bank of India (Rs 1,729 crore), Syndicate Bank (Rs 1,034 crore), UCO Bank (Rs 1,033 crore), Canara Bank (Rs 997 crore), United Bank of India (Rs 810 crore), Union Bank of India (Rs 721 crore), Corporation Bank (Rs 677 crore), Dena Bank (Rs 594 crore) and Allahabad Bank (Rs 44 crore).

The capital infusion exercise for the current fiscal is based on an assessment of need as per the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and estimates of the potential for growth of each PSB, it had said.

Finance minister Arun Jaitley in his budget speech for 2016-17 had proposed to allocate Rs 25,000 crore towards recapitalisation of PSU banks. “If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these Banks,” he had said.

 

Source: http://www.mydigitalfc.com/economy/finmin-revises-criteria-recapitalisation-psbs-539

Pace of new bad loan formation has decelerated: RBI

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RBI Deputy Governor S S Mundra today said the pace of formation of new non-performing assets (NPAs) or bad loans has decelerated although some banks have posted losses for the first quarter of the current financial year due to higher provisioning.

He also said most of the banks are adequately capitalised and the government has promised additional capital if they require.

In a bid to shore up cash-strapped public sector banks, the government last month announced infusion of Rs 22,915 crore capital in 13 lenders including SBI and Indian Overseas Bank to revive loan growth that has hit a two-decade low.

As far as bad loans are concerned, he said, they are showing a mixed trend.

“When I look at individual results, there are number of banks for whom it appears that the worst is over but then there are other banks…still they are in middle of it and they would need to do some work before they get out of it,” he said.

“It would be naive to believe that there won’t be any NPA formation but the pace of new NPA formation has clearly decelerated, that is what the major trend is,” he added.

Gross NPAs of the public sector banks had surged from 5.43 per cent (Rs 2.67 lakh crore) of advances in 2014-15 to 9.32 per cent (Rs 4.76 lakh crore) in 2015-16.

As per the latest Financial Stability Report by RBI, the Gross NPA ratio for public sector banks may go up to 10.1 per cent by March 2017 under the baseline scenario.

Many banks including Bank of India, Dena Bank, and Central Bank of India, reported losses for the quarter ended June 30, due to a sharp jump in provisions for NPAs on account of an asset quality review mandated by the RBI in December.

Talking about the recapitalisation, Mundra said the Finance Minister has indicated that if there is a need the government would be ready to provide additional capital.

“So, as far as the present situation is concerned I think most of the banks are adequately capitalised to take care of minimum regulatory requirements. We will keep a watch. As we move into the year we will see how things pan out,” he said.

On controversial virtual currency bitcoin, Mundra said: “This entire area fintech as we mentioned…you should not be stifling the innovation. Be mindful and what they call as regulator sand marks means you allow some of the experiments to happen under the control conditions so that the positive or the negative fallouts can be well understood and calibrated.”

Source: http://economictimes.indiatimes.com/articleshow/53825048.cms