Government May Infuse Rs 11,000 Crore In Five State-Run Banks

The government may infuse Rs 11,336 crore in five state-owned banks in a week's time to help them make interest payments due on some bonds, a senior government official told BloombergQuint.

The infusion in the five lenders—of which three are under the central bank's prompt corrective action framework—may be done using recapitalisation bonds, the official said.

The infusion would be part of remaining Rs 65,000 crore out of Rs 2.11 lakh crore capital infusion over two financial years. The government had announced bank recapitalisation in October last year to provide capital to public sector banks saddled with mounting bad loans.

According to the latest proposal, here's how much each of the five banks will get:

• Allahabad Bank: Rs 1,790 crore.
• Andhra Bank: Rs 2,019 crore.
• Corporation Bank: Rs 2,555 crore.
• Punjab National Bank: Rs 2,816 crore.
• Indian Overseas Bank: Rs 2,157 crore.

Some of these banks are under pressure to make interest payments, due in July and August, on bonds issued earlier. The amount that government infuses will ensure that they meet capital adequacy ratio of 9 percent and service their debt capital instruments, said Anil Gupta, vice president of financial sector ratings at ICRA.

Coupon payments of about Rs 99 crore on additional tier 1 bonds are due for Andhra Bank in August 2018, while interest liability of PNB is about Rs 135 crore this month, said Gupta. Banks raise capital through AT1 bonds, which are perpetual in nature and therefore provide higher interest rates to investors.

While Allahabad Bank, Indian Overseas Bank and Corporation Bank recalled their AT1 bonds after coming under the prompt corrective action, they have to service coupon payments on upper tier 1 and upper tier 2 bonds, Gupta said.

According to Gupta:

• Allahabad Bank needs infusion as it breached its capital adequacy ratio of 9 percent in January-March.
• Corporation Bank needs to pay interest on upper tier 2 bonds of about Rs 55 crore and about Rs 50 crore for upper tier 1 bonds due by August.
• Indian Overseas Bank has interest payments of about Rs 146 crore on both upper tier 1 and upper tier 2 bonds due in September.

“We were expecting Oriental Bank of Commerce, Bank of India and UCO Bank also to receive capital, but not immediately as either their interest payments on bonds may not be due immediately or they are likely to meet 9 percent CRAR in near term,” said Gupta.