Government injects Rs 7500 crore funds into 6 public banks

Central Government has infused over Rs. 7500 crore equity capital in six stressed public sector banks (PSBs). These six banks are Bank of India, Central Bank of India, Dena Bank, IDBI Bank, Bank of Maharashtra and UCO Bank.

Need for Capital Infusion:

There was a need for capital infusion as some of these PSBs could have breached the minimum regulatory capital requirement, as mandated by the Reserve Bank of India (RBI), at the end of the third quarter i.e. on December 31, 2017.

• As per RBI norms, Banks have to maintain minimum 9% capital adequacy ratio (CAR). Capital adequacy ratio (CAR) is a measure of a bank’s capital, expressed as a percentage of a bank’s risk weighted credit exposures. Higher CAR reflects bank’s strength and ability to absorb losses.
• As per RBI data, capital adequacy ratio of PSBs as on September 30, 2017 was 12.2%.
• It is to be noted that all the above stated PSB are saddled with huge non-performing assets and are facing Prompt Corrective Action (PCA) from RBI.
• Banks facing PCA are restricted from carrying out certain banking activities. These include, restrictions on opening branches, recruiting staff and giving increments to employees. In addition to these, Banks facing PCA can offer loans only to selected entities having high investment ratings.
• PCA is imposed to prevent banks from undertaking certain riskier activities and focus on conserving capital.
• Other than above stated six PSBs, Oriental Bank of Commerce, United Bank of India, Corporation Bank and Indian Overseas Bank are also facing PCA from RBI.

Amount of Capital Infusion: