New Delhi: State-run lenders Bank of Maharashtra, Central Bank of India and UCO Bank on Wednesday received board approvals to raise a total of Rs 2,348 crore by selling shares to the government, said the banks in a stock exchange filing.
The government on November 28, had informed each of these banks that it has allocated capital to them.
Banks, especially state-owned lenders, are needed in of capital to not only meet regulatory requirements under the so-called Basel III norms, which will be fully implemented from April 2019 but also to clean up their stressed balance sheets. Indian banks are sitting on a stressed asset pool of over Rs 10 trillion.
With these three banks, the government has now allotted a total of Rs 7,577 crore to six public sector banks, all of whom are under the Reserve Bank of India’s prompt corrective action (PCA). The other three banks are IDBI Bank, Dena Bank and Bank of India. Of these, IDBI Bank has got the highest allocation of Rs 2,729 crore.
The central bank has put lenders under PCA owing to their weak financial health as bad loans soared and return on assets turned negative. Fall in capital levels below the regulatory prescription can also lead to the initiation of PCA.
PCA forces banks to step up recoveries of bad loans, reduce risky loans, strengthen capital base and restrict branch expansion, among other measures, in order to improve balance sheet health.
The capital allocation comes at a time when the government is yet to announce the final details of the recapitalisation bonds. In October, finance minister Arun Jaitley had announced a Rs 2.11 trillion bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment.
Out of the total commitment, Rs 1.35 trillion is expected to come from the sale of so-called recapitalisation bonds. The remaining Rs76,000 crore will be through budgetary allocation and fundraising from the markets.