Govt set to infuse Rs 14,500 crore capital in 4 state-run banks

The authorities Wednesday stated it would infuse Rs 14,500 crore of fairness in Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank by issuing non-interest bearing, non-transferable bonds to those state-owned lenders. Equity injection is anticipated to assist three of those banks come out of the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA) framework. Indian Overseas Bank, Central Bank of India and UCO Bank are at present underneath the PCA framework that places a number of restrictions on them, together with on lending, administration compensation and administrators’ charges.
Of the entire capital infusion, Rs 11,500 crore has gone to those three banks whereas the remaining Rs 3,000 crore has been infused into Bank of India. According to a authorities notification, Rs 4,800 crore has been supplied to Central Bank of India, Rs 4,100 crore to Indian Overseas Bank, Rs 2,600 crore to UCO Bank
The fund infusion has been executed via non-interest bearing bonds issued at par with maturity various between March 31, 2031 and March 31, 2036. For the present monetary 12 months, the federal government had allotted Rs 20,000 crore for capital infusion into the general public sector banks for assembly regulatory necessities.
The authorities has earlier used related securities to recapitalise Punjab & Sind Bank by issuing the lender Rs 5,500-crore value of non-interest bearing bonds valued at par. These are a variation of zero coupon bonds issued by personal sector firms. Unlike the earlier tranches of recapitalisation bonds which carried curiosity and had been offered to completely different banks, these “non-interest bearing, non-transferable special GOI securities” are issued to specified banks.
Zero coupon bonds by personal firms are usually issued at low cost, however since these particular bonds aren’t tradable these will be issued at par. Since these bonds aren’t tradable, the lenders can hold them within the HTM (held to maturity) bucket, not requiring it to ebook any mark-to-market good points or losses from these bonds.