The Govt of India has set aside a total of Rs 15,000 crore for weak public sector lenders like Central Bank of India and Punjab & Sind Bank, for capital infusion in the ongoing financial year.
The infused capital in such public banks will help them meet regulatory requirements.
Details on Govt Infusing About Rs 15,000 Cr in Weak Banks
Banks that had received money through non-interest-bearing bonds last year will be eligible for the capital infusion of Rs 15,000 crore by the government.
As per sources, the central bank Reserve Bank of India had earlier raised some concerns on the fair valuation of these instruments.
These are special non-interest bearing securities with a tenure of 10-15 years and are valued at par, states a report.
The rating agency ??India Ratings and Research stated that the five public sector banks that received fair valuing of the equity infused by the Indian Govt in the past year, their effective Tier 1 capital levels could reduce from 50-175 basis points.
Punjab & Sind Bank announced earlier in February that its board approved to raise equity capital worth Rs 4,600 crore through preference shares issued to the government.
The capital raised would be utilized by the bank to boost its capital to the necessary level so that it can be avoided from coming under the PCA or prompt corrective action framework.
The rating agency further said that the net worth of zero coupon bonds could be lower by almost 50% at the end of the ongoing financial year FY22at the outset than similar maturity government papers in the market, given they do not carry any interest, while the illiquid, non-trading nature of these securities could add to the discount, added the report.
“These banks have moderate competitiveness to raise equity and would need to offer materially higher yields to raise Additional Tier 1 (AT-1) capital from the markets. Valuing these zero-interest bonds at a fair level could coerce these banks to raise either equity or AT1 in the near term solely on account of this factor”, added India Ratings.
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