PSBs to get Rs 13,380 crore reprieve from RBI's capital conservation buffer relaxation

A key decision taken at the recent RBI board meeting was to push back the deadline for banks to set aside an additional 0.625% as capital conservation buffer - as prescribed under the Basel III norms - by a year to help them to lend more. Investment bank Jefferies has estimated the implied reduction in capital infusion requirement following this decision at around Rs 13,380 crore, The Economic Times reported. And the government will be the biggest beneficiary since it reduces the burden on the exchequer to bridge a capital shortage at several public sector banks.

With this decision, the common equity tier-1 (CET-1) ratios requirement as of March 2019 would continue to be 7.375%, providing some relief to the 10 PSBs that fall under minimum requirement of the equity capital ratio. According to the daily, these lenders, including Oriental Bank of Commerce, Indian Overseas Bank, Andhra Bank, Central Bank of India, Punjab National Bank, United Bank, UCO Bank and IDBI Bank, will require Rs 21,420 crore of additional capital, compared with Rs 34,800 crore at 8%.

"While this [decision] would lessen the government burden, we believe this [capital addition] is minuscule and would only meet the minimum requirements. Additional capital infusion would be required should the government want the banks to push balance sheet growth," Jefferies said in a report released yesterday.

The credit squeeze for micro, small and medium enterprises (MSMEs) was another contentious topic taken up at the marathon nine-hour board meeting. The Centre's stand was that the sector, which employs about 12 crore people and plays a critical role in the economy, needed some support after being impacted by demonetisation and implementation of the Goods and Services Tax (GST).

The RBI's Central Board on Monday advised that the regulator should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore, subject to such conditions as are necessary for ensuring financial stability.

"To that extent, any restructuring scheme should alleviate some stress points, although we are not really sure if restructuring without either economic loss absorbed by lenders or a cyclical growth uptick will result in a sustainable solution," the investment bank's report added.

However, the good news is that the sector has fared better than the medium and large companies in terms in terms of bad loans. In the past two years non-performing assets (NPAs) for the MSME segment reportedly posted a 1.2 percentage point rise to 11.5%. On the other hand, NPAs for large companies increased by 7.5 percentage points to 19.5%, while that for mid-sized corporates jumped by 2 percentage points to 16.6%.

Edited by Sushmita Choudhury Agarwal