(ET)
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.
“There are some banks that have issued additional tier 1 capital bonds and the interest payments are due. Now if they don’t meet the regulatory capital norms, they will not be allowed to make such payments,” the official said. The government cannot allow public sector banks to default on such payments, which will impact their rating, the official said.
Banks raise capital through AT1 bonds, which are perpetual in nature and therefore provide higher interest rates to investors. A high level of bad loans and widening losses have made it difficult for banks to service these bonds, raising the risk of default.
