Performance to be basis of second round of PSU bank recapitalisation: report

The government will go for the next round of capital infusion in state-owned banks on the basis of the banks fulfilling certain criteria, including credit recovery, as per the finance ministry's revised recapitalisation norms.

The criteria for the second round of capital infusion in the current fiscal would also include cost management of operations as well as recovery and quality of credit on the basis of risk weighted assets, say reports, adding that banks meeting the norms by the third quarter (October-December) of the current fiscal will be eligible for the second round of funding.

The first round of capitalization last fiscal had set a target of achieving 7.5 per cent Common Equity Tier 1 (CET 1) for all supported banks at the end of the 2016 with additional targets for five major banks. The first round of capital infusion was also intended to enhance banks' lending operations and enable them to raise more money from the market.

Of the Rs22,915 crore allocated for 13 banks in the first round of capital infusion, "75 per cent of the amount (Rs 22,915 crore)...Is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market," the finance ministry had said in a statement in July.

"The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations," it had said.

Out of the Rs22,915 crore, State Bank of India (SBI) was allocated Rs7,575 crore followed by Indian Overseas Bank (Rs3,101 crore) and Punjab National Bank (Rs2,816 crore).

Of the remaining banks, Bank of India received Rs1,784 crore, Central Bank of India Rs1,729 crore, Syndicate Bank Rs1,034 crore, UCO Bank Rs1,033 crore, Canara Bank Rs997 crore, United Bank of India Rs810 crore, Union Bank of India Rs721 crore, Corporation Bank Rs677 crore, Dena Bank Rs594 crore and Allahabad Bank Rs 44 crore.

The capital infusion exercise for the current fiscal is based on an assessment of need as per the compounded annual growth rate (CAGR) of credit growth for the last five years, banks' own projections of credit growth and estimates of the potential for growth of each PSB, it had said.

The union budget for 2016-17 had proposed allocation of Rs25,000 crore for recapitalisation of PSU banks. "If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these Banks," finance minister Arun Jaitley had said.