Daily Trends Now
Daily Trends Now

Do not rush to buy PSU banks post recap plan

Do not rush to buy PSU banks post recap plan

As Jaitley pointed out, the objective of the exercise is to keep the PSBs in good health, a prime responsibility of the government. "Banks have started the process already and about 41 operations they have chose to rationalise", said Financial Services Secretary Rajiv Kumar.

The government this month sought Parliament approval for Rs 80,000 crore ($12.62 billion) that it plans to spend by March, as part of a two-year recapitalisation programme for its state-run banks to help them deal with bad debts and revive credit growth.

He said that the Public Sector Banks (PSBs) will get Rs 88,000 crore infusion from the Government, but they have to become more responsible as per the norms laid down by for them.

From recapitalization bonds and budgetary allocations IDBI Bank, the lender with the highest stressed-loan ratio, will get the biggest chunk of 106.1 billion rupees. The PSBs are faced with mounting non-performing assets (NPAs) or bad loans, putting the financial sector under stress.

In a report released on Thursday, Fitch said recapitalisation is "short of enabling the banks to meet higher regulatory capital burdens under Basel III in the face of persistent weak earnings.".

Siddharth Purohit, research analyst with SMC Institutional Equities, believes banks have received adequate funds, which should improve their balance sheets.

"Many banks entered the overseas markets". It said the recapitalisation would be dependent on performance and reforms.

While 11 "weak banks", under the Reserve Bank of India's (RBI) "prompt corrective action" (PCA), there are nine PSU banks that are not classified under extreme distress, but nevertheless have been given funds to ramp up their capital, and thereby lending capacities. "The original decision stands, it has not been reconsidered but then there is always a time in implementing the decision", Jaitley had told mediapersons while unveiling banking sector reforms on January 24.

Economic affairs secretary S.C. Garg said that these bonds will not have Statutory Liquidity Ratio (SLR) and have tenure of 10-15 years.

Fitch said the earnings of a number of state banks remain highly vulnerable, and some may report further losses from realisable values on bad loans being sharply lower than budgeted amounts. These will be swap deals and cash neutral. Bank of India, would get Rs 9,232 crore and State Bank of India, would get Rs 8,800 crore.

Nifty PSU Bank shed almost 2 per cent with the Indian Bank (down 3.6 per cent), Punjab National Bank (down 3 per cent), Bank of Baroda (down 2.9 per cent) and State Bank of India (down 2.3 per cent) contributing most to the losses on the NSE.


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