NEW DELHI: The government has firmed up plans to recapitalise select public sector banks soon after the Budget but would tie-up the capital injection with a set of conditions on improving performance in reducing bad loans and increasing fresh lending. That apart, it plans to work out aggressive plans to sell shares in public sector banks (PSBs) and for outright sale of banks, possibly starting with IDBI, said officials.
In a supplementary Budget in September, the parliament had voted for Rs 20,000 crore to be made available for recapitalisation of banks. The government has raised Rs 5,500 crore in recapitalising Punjab & Sind bank by issuing zero coupon bonds at par which cannot be traded. According to top officials, many PSBs including PNB, Union Bank of India and Canara bank will manage their capital adequacy needs by
issuing fresh equity for which plans are lined up. The three banks together will raise about Rs 15,800 crore.
However, several state-run lenders would still require capital inflows to build up their capital adequacy ratio and a decision on this would be taken soon after a review. “Though the actual erosion of capital because of bad loans piling up is now believed to be of a far lesser magnitude than what we had feared by the middle of this year, there will still be a need for some capital infusion,” said officials.
“The actual infusion of capital possibly again raised through the zero coupon route will, however, be done post-budget,” officials added.
Meanwhile, the government will also announce plans to sell shares in several state-run banks next year and is mulling the strategic sale of IDBI Bank to begin with. A consultant would be appointed to look into these issues and firm up plans for the proposed divestment.
A report released by rating agency ICRA on Monday said public sector banks will need to raise additional capital of up to Rs 43,000 crore next year as they have call options falling due on the bonds worth Rs 23,300 crore during FY22. “Ability of banks to raise capital will be critical to reduce government’s recapitalisation burden,” it noted.