Government finally lays out a detailed roadmap for PSU banks: Angel Broking

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

"The Rs.2.11 trillion bank recap announcement was, essentially, a trailer with the government laying out the complete road map for PSU banks in India. The new pan has laid out rigorous guidelines for banks to be eligible for recapitalization funds. The government has allocated Rs.88,139 crore for bank recapitalization (predominantly through recap bonds) of which Rs.52,311 crore will be allocated to 11 PSU banks that are currently under Prompt Corrective Action (PCA). Banks under PCA are those with very high NPAS and low levels of capital adequacy.

Among the non-PCA banks, SBI, PNB, BOB, Canara Bank and Union Bank will be the major recipients of recap funds. Among the PCA banks, IDBI Bank, Bank of India, UCO Bank, Central Bank and IOB will be the major recipients. The government has also given a tacit assurance that not a single state run bank would be allowed to fail. As part of the recap deal banks will also have to identify non-core areas for hiving off, as well as overseas branches to be shut down. The big takeaway is that the recapitalization package will actually create Rs.500,000 crore of incremental lending capacity, which can catalyze the revival of the capital investment cycle in India.

The details of the plan were outlined by Rajeev Kumar, Secretary, Department of Financial Services, government of India."

Source : Equity Bulls

Keywords