Definition
Capital Infusion (Recapitalisation)
Capital infusion or recapitalisation is the injection of fresh equity capital into a bank, often by the government for PSU banks, to restore capital adequacy.
When a bank's CRAR or CET1 falls toward regulatory minimums, it needs fresh capital to keep lending and absorb losses. The Government of India has repeatedly recapitalised public-sector banks, including through recapitalisation bonds, to shore up their balance sheets after large NPA clean-ups.
Recapitalisation dilutes existing shareholders but strengthens solvency and growth capacity. For investors, the manner and price of infusion matter: capital raised below book value is more dilutive, while a bank that can raise capital at a premium signals market confidence.
Related terms
- Capital Adequacy Ratio (CAR / CRAR)The Capital Adequacy Ratio, also called CRAR, is the ratio of a bank's capital to its risk-weighted assets, measuring its ability to absorb losses.
- Common Equity Tier 1 (CET1)Common Equity Tier 1 is the highest-quality bank capital, consisting of paid-up equity shares, share premium and retained earnings, net of regulatory deductions.
- Book Value of a BankThe book value of a bank is its net worth, total assets minus liabilities, often viewed per share and adjusted for net NPAs to gauge underlying value.
- Prompt Corrective Action (PCA)Prompt Corrective Action is the RBI framework that imposes restrictions on weak banks breaching thresholds for capital, asset quality or profitability.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.