"The merging banks will need support to pull through the merger and are in need of capital at least for three quarters in the next fiscal to meet their overall regulatory capital limits post merger and not to put pressure on the anchor bank's balance sheet," a source said.
The idea behind the budgetary provision for capital infusion is the merging banks could be in losses and their NPA situation may not dramatically improve and this may disturb the healthy capital base of the anchor banks.
Budget 2019 had allocated Rs 70,000 crore to the public sector banks to be infused to meet their core capital regulatory needs.
Currently, the Indian Overseas Bank, the Central Bank of India, the UCO Bank and the United Bank of India are under Prompt Corrective Action (PCA) framework due to their poor balance sheet and capital position. They also stand to gain from the recap, sources added.
As per the merger road map, the Punjab National Bank, the Oriental Bank of Commerce and the United Bank of India are to be merged. The new merged bank will be the second-largest PSB in the country with Rs 18 lakh crore business and the second-largest branch network in India.
The Canara and Syndicate Banks will also merge to become the fourth-largest PSB with Rs 15.2 lakh crore business and third-largest branch network in India.
The merger of the Union Bank of India, the Andhra Bank and the Corporation Bank will create India's fifth-largest PSB with Rs 14.6 lakh crore business and fourth-largest branch network.
The Indian Bank and the Allahabad Bank will merge to form the seventh-largest bank with Rs 8.08 lakh crore business.
All the banks are slated to start on merged entity platform from April 1, 2020. Among all four anchor banks the Punjab National Bank was given Rs 16,091 crore, the Union Bank of India Rs 11,768 crore, the Canara Bank Rs 6,571 crore and the Indian Bank Rs 2,534 crore.
Of the merging entities, the Allahabad Bank was provided Rs 2,153 crore, the United Bank of India 1,666 crore and the Andhra Bank Rs 200 crore. Besides, the Bank of Baroda got a capital infusion of Rs 7,000 crore, the Indian Overseas Bank Rs 4,360 crore, the UCO Bank Rs 2,142 crore, the Punjab & Sind Bank Rs 787 crore and the Central Bank of India Rs 3,353 crore.
LIC-owned IDBI Bank too received additional capital of Rs 4,557 crore through the first supplementary demands for grants approved by Parliament last month.
(Anjana Das can be contacted at anjana.d@.in)
( With inputs from IANS )