Public Sector Banks surge on stock market as government approved recapitalization plan

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After the announcement by the government for the recapitalization of 12 Public Sector banks(PSB), the shares of the Public lenders surged in the share market. This hike comes a couple of days after when earlier this week government gave approval to a recapitalization plan. As per the plan, government will be infusing fresh capital of around 48,000 Crore in 12 public lenders with an aim to boost credit growth.

Shares of Corporation Bank, Indian Overseas Bank, Central Bank of India, Andhra Bank, Bank of Maharashtra, UCO Bank, United Bank of India, Allahabad Bank, Syndicate Bank, Punjab National Bank, Union Bank of India, and Bank of India were up 2-19% on Thursday. Among all lenders only Indian Bank and Bank of Baroda closed lower.

As per plan, Allahabad Bank will receive ₹6,896 Crore, ₹9,086 crore will be infused in Corporation Bank and ₹5,908 crore in the recent fraud hit Punjab National Bank(PNB).

This is part of the bigger recapitalization plan by government, which will be infusing 1.06 trillion in the public sector banks in the fiscal 2019.

This fresh infusion of capital will enable lenders to make more provisions for bad loans and write-offs, thus lowering the net non-performing loans to less than 6%, which is below the threshold under Prompt corrective action(PCA) framework by RBI. Under the framework, central bank monitors key performance indicators of the banks as an early warning exercise and PCA is started once the threshold limit relating to capital, asset quality and profitability are crossed.

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