Recap to help weak banks
Hopes have brightened for banks that continue to remain under the RBI’s prompt corrective action (PCA) framework.
Union finance minister Nirmala Sitharaman’s Rs 70,000-crore bank recapitalisation announcement could see them come out of the mechanism, which places lending and other restrictions.
The five lenders under PCA are: United Bank of India (UBI), Uco Bank, Central Bank of India, Indian Overseas Bank and IDBI Bank, Most of these banks had expressed optimism to exit the framework in this fiscal itself.
The finance minister’s announcement could now quicken the process with analysts expecting capital infusion to help some of them to increase their provisions and bring down their net NPA ratio which is a key criteria for banks under NPA. It remains to be seen if the Centre injects capital in IDBI Bank, which is now controlled by the Life Insurance Corporation (LIC). The government is the second largest shareholder having a little over 46 per cent for the period ended March 31, 2019.
“Although the allocation to individual banks is yet to be seen, this could be used towards balance sheet clean-up and improving provision coverage in the weaker set of banks,” analysts at Kotak Institutional Equities said in a note.
Analysts said the recap support exceeded their expectations: already PSU banks had been recapitalised by a whopping Rs 3.19 lakh crore, of which Rs 2.5 lakh was done by the Centre. They were expecting the finance minister to announce a capital infusion of around Rs 40,000 crore.
Among the PCA lenders, the Calcutta-based UBI and Uco had earlier announced their plans to bring down their net non-performing assets below the PCA threshold of 6 per cent in this year. The UBI had earlier indicated that it is looking to bring down its gross non-performing assets to 8-9 per cent and net non-performing assets to 3-4 per cent by the end of this fiscal.
NPAs of the UBI were 8.67 per cent for the January-March quarter compared with 12.08 per cent in the preceding three months and 16.49 per cent in the period ended March 31, 2018.
Similarly, Uco Bank has seen its net NPA decline to 9.72 per cent as of March 31, 2019 from 12.48 per cent in the third quarter ended December 31, 2018 and 13.10 per cent in the preceding year.
In Indian Overseas Bank, the percentage of net NPA came down to 10.81 per cent in the fourth quarter last year from 13.56 per cent in the third quarter.
The RBI had earlier placed 12 banks under PCA.
Earlier this year, it took Bank of India and Bank of Maharashtra out of the PCA framework; subsequently, Allahabad Bank, Corporation Bank and Dhanlaxmi Bank came out of PCA. Dena Bank came out of the arrangement as it merged with the Bank of Baroda (BoB).