FinMin to push PSU banks to take QIP route to raise capital

CNBC-TV18 had reported on Thursday, that the government is looking for ways to infuse additional capital in PSU banks. Today, finance ministry sources say that the ministry will encourage PSU banks to take the qualified institutional placement route to raise additional capital, reports CNBC-TV18's Aakansha Sethi.

Also Read: PSU banks to get more funds to lend to auto, cons durables
Sources say at this point the only allocation they have for capital infusion in public sector banks is the Rs 14,000 crore in the Budget. Remember there are four banks that do not meet the 8 percent tier-I capital norms to which this money has to be allocated. All of this Rs 14,000 crore will not be allocated to the four banks. But pretty much all the PSUs have asked for additional capital infusion. Sources say that they are going to encourage public sector banks to explore the QIP route in order to not just meet the capital adequacy norms but also in order to get additional money for cheaper lending rates.
The other key point is that the finance ministry had asked Punjab National Bank to look into data on how much lending rates can be reduced after the finance minister announced the proposal on Thursday.
Punjab National Bank has gotten back to the finance ministry and said that if lending rates are only to be reduced in certain sectors and new loans then there could be a reduction of about 0.6 to 1 percent, but they may be legally compelled to reduce lending rates not just on new loans but on outstanding debt also because if somebody has already taken a loan they may go to court and say that the lower rates should apply to them as well. In that case the decrease in lending rates would not be greater than 0.5 percent and that will not be significant to stimulate demand. So, clearly the finance ministry will have to look into this in greater detail and on how really this scheme can be implemented.