Banks are mandated to maintain minimum 9% capital adequacy ratio (CAR) plus a capital conservation buffer of 2.5%. Within the CAR, minimum common equity tier-I (CET 1) capital ratio is prescribed at 5.5%. The Kolkata-based UCO Bank has informed stock exchanges that the Centre, in its letter dated December 28, ‘communicated its sanction for release of ₹1,375 crore towards preferential allotment of equity shares.’ IDBI Bank has also informed the exchanges about the capital infusion.
According to latest RBI data, capital adequacy ratio of PSBs as on September 30 was 12.2% while the CET 1 ratio was 4.7%. UCO Bank, for example, had a CET 1 of 6.64% and gross non-performing asset ratio of 19.74% as on 30 September.
All these banks are saddled with huge non-performing assets and are under the prompt corrective action (PCA) framework of the Reserve Bank of India — which means certain operations of these banks have been curtailed by the regulator.
Deny claims
There were rumours circulated on social media, after PCA was imposed on banks, that due to poor financial health, some of them could be closed down. Both, the RBI and the Centre, strongly denied these claims.
While the RBI clarified that PCA was imposed to encourage banks eschew certain riskier activities and focus on conserving capital, Financial Services Secretary Rajiv Kumar also tweeted recently saying there was no question of closing down any PSB and added the Centre was strengthening its banks by infusing capital.
(thehindu)