Industry Update Back
Financials -Banks: Government announces big bang capital infusion plan for PSBs

  • In an unexpected development (more because of the quantum) the government has announced a PSU Bank recapitalization plan amounting to INR2.1t (48% of PSU banks' current market cap). This will comprise- (i) front-ended capital infusion of INR1.35t to be funded via recapitalization bonds and (ii) INR760b of capital infusion from budgetary support and proposed capital raisings by the PSU banks, of which INR180b will be infused this year as part of the 'Indradhanush' plan. 
  • The government will allocate funds to the banks after analyzing their performance, size and capital requirements. While the details on the recapitalization bonds are yet to be announced, we believe that this move will help address the perennial capital constraints facing the PSU banks and also enable these banks to make the required provisions, thereby expediting the NPL resolution process.