Capitalization Measure to revamp functioning of PSBs


Union finance minister on August 14, 2015 launched a seven pronged plan-- Indradhanush--to revamp functioning of public sector banks.
The seven elements include appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms.
capitalization As of now, the PSBs are adequately capitalized and meeting all the Basel III and RBI norms. However, the Government of India wants to adequately capitalize all the banks to keep a safe buffer over and above the minimum norms of Basel III.
Government , therefore, estimated how much capital will be required this year and in the next three years till FY 2019. If the internal profit generation is excluded which is going to be available to PSBs (based on the estimate of average profit of the last three years), the capital requirement of extra capital for the next four years up to FY 2019 is likely to be about Rs.1,80,000 crore. This estimate is based on credit growth rate of 12% for the current year and 12 to 15% for the next three years depending on the size of the bank and their growth ability. The government is also presuming that the emphasis on PSBs financing will reduce over the years by development of vibrant corporate debt market and by greater participation of Private Sector Banks.
Out of the total requirement, the Government of India proposes to make available Rs.70,000 crores out of budgetary allocations for four years as per the figures given below:
(i) Financial Year 2015 -16 - Rs. 25,000 crore
(ii) Financial Year 2016-17 - Rs. 25,000 crore
(iii) Financial Year 2017-18 - Rs. 10,000 crore
(iv) Financial Year 2018-19 - Rs. 10,000 crore
Total - Rs. 70,000 crore
Government estimates that PSB’s market valuations will improve significantly due to -
(i) far- reaching governance reforms;
(ii) tight NPA management and risk controls;
(iii) significant operating improvements; and
(iv) capital allocation from the government.
Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs. 1,10,000 crore from the market.

Moreover, the government is committed to making extra budgetary provisions in FY 18 and FY 19, to ensure that PSBs remain adequately capitalized to support economic growth.
In the Supplementary Demand passed by parliament recently, an amount of Rs.12,000 crore has already been provided, in addition to Rs.7,940 crores already provided in the budget of FY 2015-16. The remaining Rs.5,000 crore would be provided in the second Supplementary later this year.
The manner of allotting Rs.25,000 crore capital this year, as announced earlier, is as follows:

Tranche 1:
About 40% of this amount will be given to those banks which require support, and every single PSB will be brought to the level of at least 7.5% by Financial Year 2016.
Tranche 2:
40% capital will be allocated to the top six big banks viz. SBI, BOB, BOI, PNB, Canara Bank, and IDBI Bank in order to strengthen them to play a vital role in the economy.
Tranche 3
 The remaining portion of 20% will be allocated to the banks based on their performance during the three quarters in the current year judged on the basis of certain performance.
This will incentivize them to improve their performance in the current year. Eight banks which did not get any money in first two tranche will get preference. As per the calculations done for Tranche 1 and Tranche 2, the specific capital allocation for each Bank is worked out as follows. This amount would be released soon.
S.No Name of Bank     -Capital Allocation -(Rs. in Crore)
1 State Bank of India     5531
2 Bank of India               2455
3 I.D.B.I.                          2229
4 Bank of Baroda       1786
5 Punjab National Bank 1732
6 Canara Bank           947
7 Indian Overseas Bank      2009
8 Union Bank of India      1080
9 Corporation Bank     857
10 Andhra Bank         378
11 Bank of Maharashtra 394
12 Allahabad Bank 283
13 Dena Bank 407

Total 20088

This does not include the allocation of remaining Rs.5,000 crore which will be decided only in the fourth quarter of FY-2016 after looking at the performance of various banks in the first nine months of FY-2016.
Eight Banks which did not get any capital in first two tranche will get preference in third tranche. The Banks can also raise capital from the capital markets.

Sunday, 03rd Jan 2016, 09:40:31 PM

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