Criteria for Recapitalisation of Banks Revised

Finance Ministry has revised the recapitalisation norms for Public Sector Banks.

The second tranche of capital allocation for the current financial year would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets.

Only those lenders that fulfil the criteria post third quarter (October-December) results of the current financial year will be eligible for the second round of funding.

The money was allocated last financial year on the twin principles of ensuring 7.5 per cent Common Equity Tier 1 (CET 1) at the end of the 2016 and growth capital to five major banks.

The government in July had announced the first round of capital infusion of Rs 22,915 crore for 13 banks.

The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market.

Out of the Rs 22,915 crore, State Bank of India (SBI) was provided Rs 7,575 crore followed by Indian Overseas Bank (Rs 3,101 crore) and Punjab National Bank (Rs 2,816 crore).

The capital infusion exercise for the current financial year is based on an assessment of need according to the compounded annual growth rate (CAGR) of credit growth for the last five years, banks’ own projections of credit growth and estimates of the potential for growth of each PSB.