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Govt to provide capital support to weak PSBs
February 28, 2022
Weak PSB lenders like Central Bank of India and Punjab & Sind Bank will get the lion’s share of the ₹15,000cr earmarked for capital investment in state-owned banks for the current financial year. This will help these public sector banks meet regulatory requirements.
The capital investment of ₹15,000cr would go mostly to banks that had got money through non-interest-bearing bonds in the previous year as the RBI has raised some concerns on the fair valuation of these instruments, sources said.
As per the RBI, the net present value of investment made last year through zero-coupon bonds is much lower than face value as they were issued at discount, the sources added.
These special securities with tenure of 10-15 years are non-interest bearing valued at par. Such bonds usually are non-interest bearing and issued at a deep discount to the face value. So, the effective Tier 1 capital levels are in the range of 50-175 basis points than reported.
Earlier this month, Punjab & Sind Bank got board approval to raise equity capital worth ₹4,600cr by issuing preference shares to the government. This would help the bank augment capital to the required level and save it from coming under the prompt corrective actions framework.
Similarly, sources said, the decision for the quantum for other banks would be taken in March, and subsequently, funds would be invested.
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