PSU banks will get fresh Rs 2.11 lakh crore in funding

Lawrence Kim
October 25, 2017

Finance Minister Arun Jaitley on Tuesday announced that Rs 2.11 lakh crore would be infused in public sector banks (PSU) banks over two years, of which Rs. 1.35 lakh crore will be through recapitalisation bonds. While the ideology of the same seems to be a lot fruitful for the lenders, it may end up inflicting a great number of risks for the banks themselves, is what the special analysts suggest.

"I commend the government on its bold steps in this direction, starting with implementation of the Insolvency and Bankruptcy Code that is helping resolve the underlying corporate stress, and culminating in yesterday's announcement of the public sector bank recapitalisation programme", Patel said.

State Bank of India rallied 19.57% to Rs Rs 304.30, Union Bank 20.37% to Rs 158.10, Punjab National Bank 29.94 per cent to Rs 179.45, Oriental Bank 15.44 per cent to Rs 137.20 and Bank of Baroda 23.09% to Rs 176.20. As part of this plan, the government will infuse Rs 1.35 lakh crore through recapitalisation bonds and Rs 76,000 crore through budgetary support and market-raising. Shares of Axis Bank Ltd. tumbled last week after the private-sector lender said it expects credit costs to surge because of an increase in soured debt. The requirement has left some of the banks, which account for about 70 percent of India's outstanding loans, historically less capitalized than their privately owned peers, obliging the government to support them.

"The proposed infusion is a sizable jump over what had been pledged before as India is seeking to plug a large part of the core equity gap at the state-run banks", said Jobin Jacob, a Mumbai-based associate director at Fitch Ratings Ltd. Infrastructure companies L&T and IRB Infra rose over 2 per cent.

Officials added the recapitalisation needs would be assessed on factors such as size and performance of a bank, while Jaitley said he expected the capital injection to make bank stocks attractive, helping sales of shares to external investors.

On Tuesday evening, the government announced Rs2.11 trillion for PSU banks' recapitalisation to revive investments as well as growth. Both HCL Tech and Infosys shares were flat today.

Elsewhere, other Asian markets finished broadly higher after solid earnings reports from heavyweights Caterpillar and 3M as well as promises of tax reform from the Trump administration helped the Dow Jones Industrial Average post its biggest gain in more than a month overnight. It later pared some of the gains.

Other reports by Click Lancashire

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