Tightrope walk: 4 PSBs left with under 1% of capital base for lending
5 June 2018: Four public-sector banks (PSBs) are dropped with less than 1% of their capital base for lending and another, Allahabad Bank, is previously in rupture of regulatory capital requirements under Basel-III, showed data from Capitoline. While the Kolkata-based donor has been hindered from expanding its risk-weighted assets or, in other words, taking a fresh revelation to corporates, with a capital sufficiency ratio (CAR) of 8.69%, it is any way left with no capital for growth. The Reserve Bank of India (RBI) mandates a CAR of 9% for scheduled commercial banks, excluding capital conservation buffers.
Of the four PSBs that ended March with CARs just above 9%, three – Central Bank of India, Corporation Bank and Indian Overseas Bank (IOB) – are under the RBI’s prompt corrective action (PCA) framework. The fourth, Punjab National Bank (PNB), is reeling under the impact of the Nirav Modi fraud and reported a CAR of 9.2% at the end of March. It is broadly assumed to be the next donor to be brought under PCA.
Last year, the government had declared a plan to shore up capital position of PSBs through a recapitalization programme of Rs 2.11 lakh crore. This does not appear viable anymore as the PSBs deal with progressing slippages, lacks on bond portfolios, the early recall of additional Tier 1 (AT-1) bonds and the Nirav Modi fraud. This has led to a sharp decline in PSBs’ share costs and reduced their ability to grow money from the markets. In a recent note, rating agency Icra said that the efficiency of the recapitalization programme has been significantly decreased as 27% of the fresh immersion was conceived as fund-raising from the markets. Karthik Srinivasan, senior vice president & group head, financial sector ratings, Icra, said in the note, “Through the recapitalization plan, Rs 90,000 crore of capital infusion has been done in FY18. However, the fact that this is less than adequate got returned after the announcement of regulative abstinence during the first week of April 2018, which was created to shore up their financial year-end reported capital ratios.”
Set for regulatory avoidance allowing them to comply bankruptcy provisions by a few quarters, the Tier I capital could be lesser than 7% for some PSBs, Srinivasan said. Unless these banks hike capital quickly, they will need to produce for these losses in their consequent regularly results.