Government will Infuse Billions to Recover the Health of Public Sector Banks

Government to Recover the Health of Public Sector Banks | Insights Success

The central government has decided to infuse billions of crore into several public sectors banks to improve their performances. The RBI has put several public sector banks under Prompt Corrective Action Framework (PCA) which restricted such banks to limit their lending capacity. The RBI in its recent report has said that the public sector banks under PCA may fail to maintain essential capital sufficiency without infusing capital in case of deterioration of their bad assets.

These banks are United Bank of India, Corporation Bank, IDBI Bank, UCO Bank, Bank of India, Central Bank of India, Indian Overseas Bank, Bank of Maharashtra, Dena Bank, Allahabad Bank, and Oriental Bank of Commerce.

The finance ministry had earlier decided to give a financial aid of INR 65,000 crore to several PSBs in 2018-19. Working towards their goal, the government has already disbursed a mammoth amount of INR 23,000 and is planning to release the remaining amount of 42,000 crore in near future. “This infusion will be rolled out with the means of recapitalization of bonds and equity shares,” sources said. The Indian parliament on 20th December itself had passed one resolution to go ahead with the next round of funding.

The government has agreed to disburse varied amount to each bank depending upon their strength to recover from the on-going crises. Out of these public sector banks, Bank of India is likely to receive highest amount of INR 10,086 crore. Next in the line is Oriental Bank of Commerce which will receive INR 5,500 crore from the government. Moreover, Bank of Maharashtra may receive INR 4, 498 crore followed by UCO Bank (INR 3,056 crore), and United Bank of India (INR 2,159 crore).

The central government is hopeful that this financial aid will assist these public sector banks to meet the capital norms under Basel III so that they can achieve the threshold target of 9 per cent CRAR, 1.875 per cent capital conversion buffer and a 6 per cent NPA threshold. “This ultimately helps them come out of the PCA framework that has put stringent restrictions on these banks expansion plans,” the finance ministry said.