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PSU Bank stocks in red, after disappointment over recap plans

PSU Bank stocks in red, after disappointment over recap plans

"The capital infusion for the PSBs would be contingent on performance, and the whole-time directors of the PSBs would be assigned theme-wise reforms to oversee", Financial Services Secretary Rajiv Kumar said, while making a presentation about the reforms agenda.

The government will ensure disbursement of 1 lakh crore rupees to PSU banks by march this year.

He said that the Public Sector Banks (PSBs) will get Rs 88,000 crore infusion from the Government, but they have to become more responsible as per the norms laid down by for them.

Large, relatively better positioned banks which are most capable of supporting growth, would receive a greater share of this first capital tranche, leading to a varying impact on capitalisation across banks, it said. "Our role really is not only to find a solution but also to create an institutional mechanism to make sure that what happened in the past is not repeated", Jaitley said.

"This injection should help IDBI Bank to meet its regulatory requirement and clean up its balance sheet significantly". The recap plan for banks: SBI to get Rs 8,800 crore; OBC - Rs 3,571 crore; Dena Bank - Rs 3,045 crore; Central Bank - Rs 5,158 crore; IOB - Rs 4,694 crore; BoI - Rs 9,232 crore; UCO - Rs 6,507 crore.

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Also, the additional capital buffers will enhance the banks' ability to raise equity capital. The bank has a huge amount of bad debt and dipped into its capital conservation buffer (CCB) a year ago. "The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision", Jaitley said. "As discussed earlier this recapitalisation will be front loaded depending on the performance and merit of the PSB", said Kumar. "In one case we are thinking of reducing the government stake to 49 per cent, IDBI Bank", he had said.

Calling public sector banks an "article of faith", the Finance Ministry on Wednesday reassured depositors that their money in these banks is safe and no state-owned bank would fail.

Global brokerage Nomura, however, noted that the capital infusion appears adequate for weaker banks, but it may lead to dilution risk. The bonds will not have Statutory Liquidity Ratio (SLR) and a tenure of 10 to 15 years. "There is not going to be a public issue".

Among banks now under the PCA, UCO Bank will get Rs 6,507 crore, Central Bank of India Rs 5,158 crore, Indian Overseas Bank Rs 4,694 crore, Oriental Bank of Commerce Rs 3,571 crore, Dena Bank Rs 3,045 crore, Bank of Maharashtra Rs 3,173 crore, United Bank of India Rs 2,634 crore, Corporation Bank Rs 2,187 crore and Allahabad Bank Rs 1,500 crore.

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