The remaining amount, to be released later, will be linked to performance
In a bid to boost credit growth in the economy, the Centre announced a sum of Rs.22,915 crore for recapitalisation of 13 public sector banks.
State Bank of India (SBI) is to receive the largest allocation of Rs.7,575 crore. Indian Overseas Bank and Punjab National Bank are to get Rs.3,191 crore and Rs.2,816 crore respectively.
The banks’ lending capacities are restricted by poor asset quality and weak capitalisation.
The infusions required in the current year were assessed from the CAGR of credit growth for the last five years and the banks’ projections of credit growth. The potential for growth of each these banks was also factored in.
“…Seventy-five per cent of the amount collected for each bank is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” according to a statement by the Union Finance Ministry.
The remaining amount, to be released later, will be linked to performance, according to the statement. Efficiency improvements, growth in both credit and deposits, and reduction in the cost of operations will be assessed for the purpose.
In the Union Budget, the Centre had allocated a total of Rs.25,000 crore for the capitalisation of public sector banks in the current financial year 2016-17, in line with the infusion plans announced under the umbrella scheme “Indradhanush” introduced last year. The plan proposes infusions adding up to Rs.25,000 crore in 2015-16 as well as in 2016-17, followed by Rs.10,000 crore each in 2017-18 and 2018-19.
SBI Chairman Arundhati Bhattacharya said that the provision of bank capital by the Centre was “most welcome” and “very timely”. The funds, she hoped, will help the banks in increasing their lending, raising additional funds and clean up balance sheets.
Public sector Indian Bank on Tuesday said it was adequately funded and would meet its capital requirements through internal accruals.
Hailing infusion of Rs.22,915 crore capital into 13 PSU banks by the Centre as an “intelligent move”, Indian Bank Managing Director and CEO Mahesh Kumar Jain said it would help lenders to focus on credit growth.
Shares of PSU banks climb
Shares of State Bank of India (SBI) shares closed 0.48 per cent higher to Rs.229.70 on BSE but PNB closed 0.83 per cent lower to Rs 131.40. Indian Overseas Bank climbed 0.90 to close at Rs.28, while Canara Bank jumped 4.71 per cent to close at Rs.258.75 on the BSE.