National Bank of Punjab: government could inject around 2,000 crore rupees into GNP by next week
The country’s third-largest public lender will issue preferential shares to the government, residents said, asking not to be named because the information is not public. This will help restore capital to the level needed to pay off the coupon due on July 25, they said.
PNB has to pay around 1,350 crore rupees to cover the 8.98% annual interest on 15,000 crore rupees of so-called AT1 bonds sold in July 2017.
Unless the PNB obtains new capital on time, it may not be able to make the payment due to the unprecedented loan fraud at the bank that surfaced in February and wiped out its profits and pushed the bank’s capital below prescribed levels, according to the local official. unit of Fitch Ratings.
PNB’s Tier I capital base was 5.96% as of March 31, below the minimum required of 7.37% by the Reserve Bank of India.
âA simple reading of the RBI rules could be interpreted as if the bank were below the minimum level I base capital requirement, it would face restrictions on the coupon payment,â said Prakash Agarwal, director of financial institutions at India Ratings & Research. , the local unit of Fitch. âThe government should step in. ”
A spokesperson for PNB said the bank would make coupon payments on the due date, subject to regulatory approvals. He did not provide further details. Two appeals to the spokesperson for the Ministry of Finance, DS Malik, went unanswered.
State-run lenders including UCO Bank, Bank of India, United Bank of India and Corporation Bank recalled AT1 bonds earlier this year, according to swap documents. The government is recalling bonds for fear that the absorption of losses by an AT1 – through a coupon deferral, capital depreciation or conversion into ordinary shares – could potentially have a contagion impact on the Indian financial system and undermine stability, S&P Global Ratings said in a note in March.
India Ratings had lowered AT1 bonds from PNB in ââMay to A + with a negative outlook of AA + due to the deterioration of capital buffers.