Gold Silver Reports (GSR) – India’s 3rd-largest state-run lender will issue preferential shares to the government, the people said, asking not to be named as the information isn’t public. This will help restore capital to the level needed to pay the coupon that’s due July 25, they said.
Finance ministry official, that the government may infuse about Rs 8,000 crore in five or six state-run banks that are likely to fall short of regulatory capital requirements, a senior finance ministry official said. These banks may include Nirav Modi scam-hit Punjab National Bank
Some banks that came under the Reserve Bank of India’s prompt corrective action (PCA) framework will also benefit from this tranche of capital infusion, said another official. The PCA framework is meant to encourage banks to avoid certain riskier activities and focus on conserving capital so that their balance sheets can become stronger.
PNB needs to pay about 1.35 billion rupees to cover the 8.98 percent annual interest on 15 billion rupees worth of so-called AT1 bonds sold in July 2017.
Unless PNB gets fresh capital in time, it may be unable to make the payment because an unprecedented loan-fraud wiped out its profits and pushed the bank’s capital below mandated levels, according to the local unit of Fitch Ratings. PNB’s core tier I capital was at 5.96 percent as of March 31, below the Reserve Bank of India’s minimum required 7.375 percent.
“A plain reading of the RBI’s rules could be interpreted as if the bank is below the minimum core tier I capital requirement, they would face restrictions on payment of coupon,” said Prakash Agarwal, head — financial institutions, at India Ratings & Research, the local unit of Fitch. “The government is expected to step in.”
A spokesman for Punjab National Bank said the bank will be making the coupon payments on the due date, subject to regulatory approvals. He didn’t provide any further details. Two calls made to Finance Ministry’s spokesman D.S. Malik were unanswered.
State-run lenders including UCO Bank, Bank of India, United Bank of India and Corporation Bank had recalled AT1 bonds earlier this year, exchange filings show. The government is recalling the bonds on concerns that loss absorption by an AT1 — by way of coupon deferral, a principal write down, or conversion into common equity — could potentially have a contagion impact on the Indian financial system and hurt stability, S&P Global Ratings said in a note in March. – Neal Bhai Reports