The Finance Ministry on Wednesday notified that authorities will infuse Rs 14,500 crore by recapitalisation bonds in 4 public sector banks. The notification issued by the finance ministry mentioned that authorities would infuse capital by issuing non-interest-bearing bonds to banks.

The step completes the government’s capital infusion of Rs 20,000 crore in public sector banks for the present monetary yr. Government had earlier infused Rs 5,500 crore in Punjab and Sind Bank in December 2020.

The 4 lenders wherein government will infuse capital include Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank. Central Bank of India will obtain highest capital infusion of Rs 4,800 crore, adopted by Rs 4,100 crore by Indian Abroad Bank. Equally, government will infuse Rs 3,000 crore in Bank of India and Rs 2,600 crore in UCO Bank. The notification by finance ministry additionally says that recapitalisation bonds can be issued with six totally different maturities.

Out of 4 lenders chosen by the government for capital infusion, three banks are under prompt corrective action (PCA) framework of Reserve Bank of India (RBI). Indian Overseas Bank, Central Bank of India and UCO Bank are at the moment under this framework that places a number of restrictions on them, including on lending, management compensation and administrators’ charges. Consultants believe capital infusion from government will assist these three banks to come back out of PCA restrictions in 2021-22 (FY22).

Anil Gupta, vice president, financial sector ratings, Icra mentioned that with government of India (GoI) deciding to infuse substantial capital in all of the three public banks which had been in PCA framework, Icra expects these banks to come back out of PCA in FY22. “However, given the capital infusion is through zero coupon recapitalisation bonds, the earning profile of these banks may not improve on account of this transaction as their capital position improves,” he added.

Earlier this month, IDBI Bank was removed from the RBI’s PCA framework after a gap of almost 4 years on improved financial performance. The central bank had positioned IDBI Bank under the PCA framework in May 2017, after it had breached the thresholds for capital adequacy, asset quality, return on assets and the leverage ratio.