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Government to provide capital support for weak PSU banks

Move to help the organisations meet regulatory requirements
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PTI   |   New Delhi   |   Published 28.02.22, 01:40 AM

Weak public sector lenders like Central Bank of India and Punjab & Sind Bank will get the lion’s share of the Rs 15,000 crore earmarked for capital infusion in state-owned banks for the current fiscal. This will help these public sector banks (PSBs) meet regulatory requirements.

The capital infusion of Rs 15,000 crore would go mostly to banks which had got money through non-interest-bearing bonds in the previous year as the RBI had raised some concerns on the fair valuation of these instruments, sources said.    

According to the RBI, the net present value of infusion made last year through the zero-coupon bonds is much lower than the face value as they were issued at discount, the sources added.

These special securities with tenure of 10-15 years are non-interest bearing and valued at par. Such bonds usually are issued at a deep discount to the face value. So, the effective Tier 1 capital levels for the banks could be lower than the regulatory requirement.    

According to India Ratings and Research, fair value of the equity infused by the Government of India (GoI) in five PSBs last year through zero-coupon bonds could lower the banks’ effective Tier 1 capital levels in the range of 50-175 basis points than reported. 

Earlier this month, Punjab & Sind Bank got board approval to raise equity capital worth Rs 4,600 crore by issuing preference shares to the government.



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