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6 PSBs funded by the Government

Published on December 31, 2017
The Government of India funded six stressed Public Sector Banks (PSBs) as some of them would have breached the minimum capital norms on 31st December, 2017.
6 PSBs funded by the Government

These six PSBs include:

  1. Central Bank of India (received Rs 2257 crores as fund)
  2. Bank of India (received Rs 323 crores as fund)
  3. Bank of Maharashtra (received Rs 650 crores as fund)
  4. UCO Bank (received Rs 1375 crores as fund)
  5. IDBI Bank (received Rs 2729 crores as fund)
  6. Dena Bank (received Rs 243 crores as fund)
  • Some of these banks were on the verge of breaching the minimum capital requirement which is mandated by the Reserve Bank of India. 
  • The Government infused the capital in these stressed banks so as to help the banks to improve on parameters such as the bad loans or NPAs.
  • These banks were facing problems of NPAs (Non Performing Assets) and were under RBI’s prompt corrective action (PCA) framework.

What are NPAs?

  • The bank has assets in the form of money. A customers take money from the banks in the form of loans which is incumbent upon the customer to pay it back.
  • When these loans are not recovered from the customers, these loans do not perform for the banks and hence are given the term Non Performing Assets.
  • The NPAs are those loans which are not recoverable for the banks.
  • Assets are classified as nonperforming when the loan payments have not been made for a continuous period of 90 days. Then the entire deposit is termed as a NPA.

What is Capital Adequacy Ratio (CAR)?

  • It is an international standard that measures a bank’s risk of insolvency from excessive losses.
  • Currently the minimum acceptable Current Adequacy Ratio is 9%.
  • Maintaining an acceptable CAR protects the bank depositors and the financial system as a whole.
  • CAR is also known as CRAR (Capital to Risk Assets Ratio).
  • CAR mathematically is-
  • [(Bank’s Tier I Capital) + (Bank’s Tier II Capital)]/Risk weighted assets
  • Tier I Capital of bank- It is the ordinary capital of the bank which can absorb bank’s losses without the bank having to suspend trading.
  • Tier II capital of bank- It is the bank’s subordinated debt which can absorb losses if the bank has to shut down.
  • Risk weighted assets- These are calculated by evaluating the bank’s riskiness. Each loan is assigned a percentage number. The higher the percentage number, the riskier the loan is.

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