Conditions put on State-owned banks for Capital infusion
State-owned banks looking forward to the next round of capital infusion will need to fulfil a new set of criteria, including credit recovery, as the Finance Ministry has revised the recapitalisation norms.
The second tranche of capital allocation for the current fiscal would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets, sources said.
Only those lenders that fulfil the criteria post third quarter (October-December) results of the current fiscal will be eligible for the second round of funding, sources added.
The government in July had announced the first round of capital infusion of Rs.22,915 crore for 13 banks.
“Seventy five per cent of the amount (Rs.22,915 crore)…is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market,” the Finance Ministry had said in a statement.
“The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations,” it had said.
The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market.
Basis of Capital infusion for the current Year
The capital infusion exercise for the current fiscal is based on an assessment of need as per 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.