FinMin likely to stick to capital infusion programme

The Finance Ministry would not curtail its capital infusion plan for this financial year even as state-owned banks would be needing fewer funds following the RBI's decision to defer the deadline to meet Basel III norms by a year, according to sources.

Under the new dispensation, the capital infusion by the government in public sector banks for meeting the capital buffer norms would come down to around Rs 15,000-20,000 crore, sources said.

However, there will not be any reduction in the capital funding plan as announced in October last year despite a lower requirement due to the extension of the deadline for meeting the CCB of 2.5% until March 2020, sources said.

The capital infusion would help improve the financial health of banks, sources said, adding that some banks would get necessary regulatory capital while others would get it for fueling growth, they clarified.

Earlier this week, the RBI in the central board meeting decided to extend the implementation of the last tranche of 0.625% of capital conservation buffer by a year to March 2020.

However, the board decided to retain the capital adequacy ratio or CRAR at 9%, against 8% prescribed by Basel III norms.

The CCB currently stands at 1.875% and the remaining 0.625% was to be met by March 2019, as per the earlier deadline fixed by the RBI.

The extension of the timeline for the implementation of the last tranche of the CCB under Basel-III capital regulations could reduce the burden of public sector banks (PSBs) by Rs 35,000 crore this fiscal, according to rating agency Crisil.

Generally, there is a leverage of 10 times on the capital, sources said adding that the lending capacity would increase by Rs 3.5 lakh crore.

After assessing the requirement of each bank, the ministry is expected to finalise the capital infusion of about Rs 54,000 crore by this month-end or by the first half of the next month.

The ministry had earlier this year provided a capital infusion of Rs 11,336 crore to five PSBs to help them meet their interest payment commitments.

Punjab National Bank (PNB), hit by the Nirav Modi scam, got the highest amount of Rs 2,816 crore, while Allahabad Bank received Rs 1,790 crore. Andhra Bank got the capital support of Rs 2,019 crore, Indian Overseas Bank received Rs 2,157 crore and Corporation Bank got Rs 2,555 crore.

The infusion was part of the remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion over two financial years.

The government announced the Rs 2.11 lakh crore capital infusion programme in October last year. As per the plan, the PSBs were to get Rs 1.35 lakh crore through re-capitalisation bonds, and the balance Rs 58,000 crore through the raising of capital from the market.

Out of the Rs 1.35 lakh crore, the government has already infused about Rs 82,000 crore through recap bonds and the balance would be done during this fiscal.