Union Bank of India, Bank of Baroda and Bank of India have sought the finance ministry's approval to raise capital, including through the placement of equity shares with institutional investors, a senior government official said.

 Public sector banks, which have been looking to shore up capital as the COVID-19 pandemic has put severe strain on their books, need government approval to raise funds through equity and additional tier-1 bonds, which are hybrids with features of both equity and debt. According to RBI's Financial Stability Report, the gross nonperforming asset ratio of public sector banks is likely to surge to 16.2% by September from 9.7% a year ago under the baseline scenario.

Bank of India and Bank of Baroda have already indicated that they may raise capital by placing shares with institutional investors. Bank of India said it might look to raise 10-12 bln rupees, while Bank of Baroda said it plans to mop up 20-40 bln rupees. Some public sector banks have already raised capital through qualified institutional placement of shares, as the government's capital support has been limited.

Punjab National Bank and Canara Bank had raised equity capital through qualified institutional placement in December. The Budget has allocated only 200 bln rupees each for capital infusion into public sector banks this financial year and the next, compared with 654 bln rupees provided in 2019-20 (Apr-Mar).

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