EUR 120.00 For Business Accounts Only

MOSL: FINANCIALS-Government announces capital infusion of INR482b in PSBs

Financials: Government announces capital infusion of INR482b in PSBs; Will enable ALBK and CRPBK to come out of PCA framework

 

According to media reports, the Indian government has announced fresh capital infusion of INR482b in public sector banks (PSBs). This is part of the overall INR1.06t capitalization plan for FY19 which the government had announced earlier. With this, the government’s total capital infusion in PSBs will go up to INR1t. The capital infusion will be based on four key considerations: (i) providing capital to better-performing PCA banks to enable them to clear the regulatory thresholds (CET-1: 6.75%, CRAR: 10.25%, NNPA <= 6%), (ii) enabling banks that have exited the PCA framework to remain above PCA triggers, (iii) equipping weak PCA banks (IOB, CBOI, UNTDB, UCO) to the meet minimum regulatory norms and (iv) facilitating weak non-PCA banks (PNB, UNBK, SNDB, ANDB) to stay above the regulatory norms. We note that the government’s shareholding across PSBs is likely to increase by 1%-11% (maximum increase for UNBK), while the CET-1 ratio is likely to increase by 28bp-789bp (maximum increase for CRPBK) – a large part of it would be consumed towards aggressive provisioning. This will further help ease the flow of credit to the MSME sector, which has been muted over the last few years.

PCA banks remain the biggest beneficiaries, yet again: According to the capital infusion plan, Allahabad Bank and Corporate Bank will receive the largest capital support of INR69.0b and INR90.9b, respectively. This will enable them to make aggressive provisions/write-offs, thereby lowering their net NPLs to <6%, which is one of the key thresholds under the PCA framework. We note that earlier BOI had received INR100.9b of capital which it utilized to make INR91.8b of provisions in 3QFY19, thereby lowering its net NPL ratio to 5.87% (NNPLs down 1.77% QoQ). Collectively, PCA banks have thus received INR1.14t of capital since Jan’18.