India is said to be preparing to infuse about Rs 2000 crore ($290 million) into Punjab National Bank by next week to help it meet dues on its perpetual bonds, people familiar with the matter said.
India’s third-largest state-run lender will issue preferential shares to the government, the people said, asking not to be named as the information isn’t public. This will help restore capital to the level needed to pay the coupon that’s due July 25, they said.
PNB needs to pay about Rs 135 crore to cover the 8.98% annual interest on Rs 1500 crore worth of so-called AT1 bonds sold in July 2017.
Unless PNB gets fresh capital in time, it may be unable to make the payment because an unprecedented loan-fraud wiped out its profits and pushed the bank’s capital below mandated levels, according to the local unit of Fitch Ratings. PNB’s core tier I capital was at 5.96 percent as of March 31, below the Reserve Bank of India’s minimum required 7.375%.
“A plain reading of the RBI’s rules could be interpreted as if the bank is below the minimum core tier I capital requirement, they would face restrictions on payment of coupon,” said Prakash Agarwal, head — financial institutions, at India Ratings & Research, the local unit of Fitch. “The government is expected to step in.”
A spokesman for Punjab National Bank said the bank will be making the coupon payments on the due date, subject to regulatory approvals. He didn’t provide any further details. Two calls made to Finance Ministry’s spokesman DS Malik were unanswered.