Capital Infusion in 10 Public Sector Banks

IAS Prelims 2023

The Finance Ministry has chalked out a turnaround-linked ₹8,586-crore capital infusion plan for 10 PSBs.

The 10 banks identified are Allahabad Bank (₹418 crore); Andhra Bank (₹1,100 crore); Bank of India (₹1,500 crore); Bank of Maharashtra (₹300 crore); Central Bank of India (₹100 crore); Dena Bank (₹600 crore); IDBI Bank (₹1,900 crore); Indian Overseas Bank (₹1,100 crore); UCO Bank (₹1,150 crore) and United Bank of India (₹418 crore).

The capital allocation would be linked to quarterly milestones on which all related parties — Banks’ Board, management, employees and unions must commit.

To avail themselves of the capital support, the identified PSBs require a tripartite Memorandum of Understanding (MoU) between the government, PSB management and employees of the PSB concerned.

This MoU is to commit all the participants to the agreement for a time bound plan beginning 2017-18 onwards with quantifiable and measurable milestones which can be monitored on quarterly basis.

SBI Caps has been inducted to design detailed bank-wise plan based on which the tripartite agreement can be signed.

The indicative list of initiatives which will form part of the milestone under the MoU will include active NPA management and strengthening of credit underwriting and monitoring process; arranging capital from the market; continuing plan for disposal of non-core assets; divestment of subsidiary stake to closure of loss making domestic/international branches.

Another initiative is rationalisation and reduction of administrative, operating expenses including temporary restructuring of employees’ benefits (in case of need) which can be reversed as the bank manages to successfully turnaround.

As per the Indradhanush roadmap announced in August 2015, the government had promised to infuse ₹70,000 crore in public sector banks over four years. At the same time, they will have to raise further ₹1.1 lakh crore from the markets to meet their capital requirement under Basel-III norms.