Recapitalization riders bring down PSU bank stocks

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The government's commitment to maintaining the health of these banks is "firm and unequivocal", said Rajeev Kumar, the secretary of Department of Financial Services. The finance ministry will raise Rs 80,000 crore through recapitalisation bonds and provide another Rs 8,139 crore from the budget to recapitalise the banks.

Though the government had earlier mentioned that banks which brought down bad loans will get a higher capital allocation, weaker banks have managed to scoop up most of the current allocation. "Our role really is not only to find a solution but also to create an institutional mechanism to make sure that what happened in the past is not repeated", Jaitley said. The government has also mandated each of the PSBs to have a stressed assets management vertical and monetise their non-core assets such as real estate to boost their capital adequacy. The government said that higher capital for weak banks is being given to ensure that they meet "regulatory requirement" on minimum capital. Nilanjan Karfa and Harshit Toshniwal, equity analysts at Jefferies India Pvt Ltd are close to endorsing the view as they say, "it is broadly implied that the infusion of capital in PCA banks is to provide them enough oxygen to survive/revive and growth capital for non-PCA banks". The government has specifically asked the banks to use much of the recap funds for lending to the SME sector. The bank has a huge amount of bad debt and dipped into its capital conservation buffer (CCB) past year. "The original decision stands". While RBI has identified the main defaulters, about 50 major corporate behemoths some of whom have escorted Prime Minister Narendra Modi to the World Economic Forum at Davos, the reluctance on the part of the central bank to name and shame the defaulters allows them the leg space to get away without punitive actions.

Depositors money in PSB is safe and no state-owned bank would fail.

Indian Bank, a smaller but profitable state-run lender, was the only bank to have not been allocated any capital in the latest round. "There is no fiscal impact of bond issuance to banks..." He added that the bonds are to have a maturity period of 10-15 years and would be issued in six tranches.

As the National Stock Exchange on Wednesday, IDBI Bank stock ended up 5.65 per cent at Rs 65.40, State Bank of India up 3.76 per cent at Rs 330.05 and Punjab National Bank up 5.19 per cent at Rs 195.45.

Nifty PSU Bank shed almost 2 per cent with the Indian Bank (down 3.6 per cent), Punjab National Bank (down 3 per cent), Bank of Baroda (down 2.9 per cent) and State Bank of India (down 2.3 per cent) contributing most to the losses on the NSE.