New Delhi: State-owned banks looking forward to the next round of capital infusion will need to fulfil a new set of criteria, including credit recovery, as the finance ministry has revised the recapitalization norms.

The second tranche of capital allocation for the current fiscal would be based on cost of operations as well as recovery and quality of credit on the basis of risk weighted assets, people familiar with the matter said.

Only those lenders that fulfil the criteria after the third quarter (October-December) results of the current fiscal will be eligible for the second round of funding, the people said.

The funds were allocated last fiscal on the twin principles of ensuring 7.5% common equity tier 1 at the end of the 2016 and growth capital to five major banks.

The government in July announced the first round of capital infusion of ₹ 22,915 crore for 13 banks.

“75% of the amount ( ₹ 22,915 crore) is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market," the finance ministry had said in a statement.

“The remaining amount, to be released later, will be linked to performance with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations," it had said.

The first tranche was announced with the objective to enhance their lending operations and enable them to raise more money from the market. The capital infusion exercise for the current fiscal is based on an assessment of need as per the compound annual growth rate of credit growth for the last five years, banks’ own projections of credit growth and estimates of the potential for growth of each PSB, the finance ministry had said.

Finance minister Arun Jaitley in his budget speech for 2016-17 had proposed to allocate ₹ 25,000 crore towards recapitalization of PSBs. “If additional capital is required by these banks, we will find the resources for doing so. We stand solidly behind these banks," he had said.

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