Punjab and Sind Bank on Thursday said its board of directors has approved the issue of preference shares up to Rs 4,600 crore to the central government.

The move comes at a time the government has made no fund allocation for the recapitalisation of banks in the budget, raising questions over its resolve to avoid fresh capital infusion amid improving financial performance of PSU banks.

A total of Rs 3.1 lakh crore has been infused by the government between 2016-17 and 2020-21 through a combination of budgetary allocation and recapitalisation bonds, according to a disclosure by the government in Parliament.

Market analysts expected no fresh capital allocation to public sector banks in the budget with credit rating agency Icra pointing out the PSU banks have significantly cleaned up their balance sheets with high provisions on legacy stressed assets.

“The bank made a request with the finance ministry for a requirement of capital which has been approved,” said a Punjab and Sind Bank official on Thursday. The bank was formally informed by the Department of Financial Services on February 14, 2022.

As of December 31, 2021, the government holding in the bank was at 97.07 per cent. The official further said that the bank’s countercyclical capital buffer requirement has increased.

In its financial disclosure, Punjab and Sind Bank has said the capital adequacy was 17.82 per cent against a requirement of 11.5 per cent for the quarter ended December.

The increased capital requirement along with business growth prospects have prompted the bank to ask for fresh capital infusion.

The government’s move to allow fresh capital in a public sector bank also raised questions among market observers whether the bank may be out of contention for privatisation.

Finance minister Nirmala Sitharaman had earlier said two public sector banks other than IDBI Bank would be privatised.

While the expression of interest for the strategic sale of IDBI Bank is expected soon, uncertainty looms over the divestment of government stake in the other two banks with the proposed Banking Laws (Amendment) Bill, 2021 yet to be introduced and cleared.

“Until the bill is introduced, there will be no clarity on which two PSU banks will be ultimately considered for privatisation,” said a senior official of a public sector bank.