With this, centre’s capital infusion in Public Sector Banks (PSBs) reached around Rs 136 billion this financial year. Last year, the government had infused around Rs 710 billion (out of the Rs 1.35 trillion) through recap bonds last financial year.
The notification for investing the funds via recapitalisation bonds to Central Bank of India was issued by the government on Monday.
AT-1 bonds are uninterrupted in nature and therefore it provides inflated interest to the investors. Rising menace of Non-Performing Assets (NPAs) have increased the losses and therefore made it difficult for banks to service these bonds from their own earnings.
As a result, public lenders are struggling to face the risk of breaching the regulatory capital requirement. Sources suggest that centre may also look into the recapitalisation on Bank of Baroda, Vijaya Bank and Dena Bank prior to their merger. The merger had been announced recently and it will create the third largest bank in the country.
In July, the government infused around Rs 113 billion into five public sector banks, including Punjab National Bank, for similar requirements.