PSU bank stocks tumble up to 7% on recap announcement

Ann Santiago
January 26, 2018

Jaitley said that "the main objective of this flows from the government's responsibility to keep public sector banks in good health". "Banks have started the process already and about 41 operations they have made a decision to rationalise", said Financial Services Secretary Rajiv Kumar.

In the current financial year, Rs 88,139 crore would be infused into the banks, of which Rs 80,000 crore would be from recapitalisation bonds and Rs 8,139 crore would be from budgetary allocation.

It announced that Rs 1,35,000 crore would be infused through recapitalisation bonds, which would be issued by the government and would be subscribed by public sector banks in lieu of the capital they get from the government.

Among gainers, only IDBI Bank and Bank of India, the two banks that received the most capital, were trading in green, rallying up to 3 per cent on the NSE.

Mr Jaitley said that the Non Performiong Assets (NPAs) was a major problem which NDA Government inherited and trying to find out the solution for it. State-run lenders account for more than two-thirds of the country's banking assets.

"This injection should help IDBI Bank to meet its regulatory requirement and clean up its balance sheet significantly". There is no proposal yet to merge banks, which is another positive for stronger banks like BoB and SBI, they say.

IDBI Bank, which will receive 106.1 billion rupees in aid, has a nonperforming loan ratio of 16.1% as of September.

While 11 "weak banks", under the Reserve Bank of India's (RBI) "prompt corrective action" (PCA), there are nine PSU banks that are not classified under extreme distress, but nevertheless have been given funds to ramp up their capital, and thereby lending capacities.

Analysts said that the injections were just one step in the long process to clean up India's bad debt, and that the lenders' final capital position will also depend on how they undertake the central bank's directive to take almost 40 large corporate loan defaulters to bankruptcy proceedings, which will likely involve haircuts on their loans.

Economic affairs secretary S.C. Garg said that these bonds will not have Statutory Liquidity Ratio (SLR) and have tenure of 10-15 years.

The Government on Wednesday spelled out new banking roadmap and once again reiterated that the depositors money in the banks are safe. These will be swap deals and cash neutral.

Allahabad Bank fell 3.76%, Bank of Maharashtra 2.36 per cent, Bank of India 2 per cent, United Bank of India 1.11 per cent, Central Bank of India 1 per cent, Indian Overseas Bank 0.85 per cent and Dena Bank 0.19 per cent.

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