Tuesday, March 8, 2011



from Budget 2011-12

PUBLIC SECTOR BANKS  in India have been performing very well during the current year. Those FEW which were not performing well last year due to heavy NPAs are also recovering back to good health in current year.

The latest Budget had the following Provision in it regarding the Public Sector banks :

Public Sector Bank Capitalisation

�� Rs. 6,000 crore to be provided during 2011-12 to enable public sector banks to
maintain a minimum of Tier I CRAR of 8 per cent.

Already, several Public Sector Banks have started proposals for passing resolutions  for allocating preferential equity capital to the Government of India at a price to be determined in the usual  manner.

What does this mean for the profitability of these banks?

Equity Infusion implies – interest free funds for the Bank. The Bank does not have to pay any interest on the same. Annual dividend Payment is limited to the FACE VALUE  subscribed for, and not for the premium paid by the Government of India.

The Bank gets huge Loanable funds into its kitty – and depending on its use, starts earning huge profits very quickly. The profitability improves in  and from the very next quarter considerably.

But, at the same time, the equity goes up by only a small percentage – making the dividend payable, a small fraction of the profits derived from the funds.

It is a win-win situation for the Banks concerned.

So far, Banks like UCO BANK, DENA BANK, ANDHRA BANK etc have proposed for passing resolutions in March, 2011 for equity infusion by the Government of India, presumably from this Budget Allocation.

All these banks are excellent performers. Andhra Bank has  for a long time been a Great performer improving further in each quarter. 

Next comes Dena bank, whose recent performances have been very good. 

U Co Bank has picked up well and can be expected to do well in coming quarters.

Vijaya Bank has been performing quite well .All these banks are spreading their Branch Network all over India in recent past.

1.U.CO.BANK : Resolution for Rs.940 Crores total amount;  
2.DENA BANK : Resolution for Rs.539 Crores total amount;
3. ANDHRA BANK : Resolution for Rs.618 Crores total amount.
4. VIJAYA BANK : Resolution for Rs.368 Cr total amount ( Note : The resolution mentions Rs.94 as issue price)

The resolutions are to be passed on EGMs in March 2011 by the Boards of the above Banks. 

As the total amount earmarked by the Government is Rs.6000 Crores- a  number of other Public sector Banks are also expected to pass similar resolutions . Investors can expect this measure to benefit the PSBs considerably in the 2011-12 year.

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