Rs 14,000 crore for PSB recapitalisation

Extension of interest subvention scheme on farm loans to private banks will create a level playing field

Finance minister P Chidambaram has set aside Rs 14,000 crore for the recapitalisation of the public sector banks (PSBs) in the next fiscal as against about Rs 12,500 crore last year, which experts say is sufficient to cover their requirements and will help them in growing their business.

The capital requirements of the banks will go up in next five years as Basel-III norms would be effected from April 1 this year.

Reserve Bank of India has estimated that banks will require capital infusion of about Rs 5 lakh crore over five years to fully comply with the enhanced capital requirements norms, of which a large part is expected in the last two years.

“Rs 14,000 crore for the recapiltalisation of the PSBs should be enough for the first year as the banks are already in better position as of now compared with what the norms require,” said Ashwini Patil, assistant general manager, banking, CARE Ratings.

“Major capital requirement for Basel-III would only come in last two years (FY17 and FY18) and first three years won’t be much of a challenge for the banks (including public sector),” said Ehsan Syed, director, financial institutions, India Ratings.    

Chidambaram also assured that capital support from the government for PSBs would be extended whenever required. “We shall ensure that public sector banks always meet the Basel III regulations as they come into force in a phased manner,” Chidambaram said.   

He also said that the government will provide Rs 12,517 crore to 13 PSBs before March 31. For FY13, the government had made budgetary allocation of Rs 15,888 crore for recapilasitaion of the PSBs, regional rural banks (RRB) and other financial intuitions including NABARD.

Finance minister has also proposed that interest subvention scheme for short-term crop loans be extended to the private sector banks in addition to PSBs, RRBs and cooperative banks. Experts believe the move is positive and will provide a level playing field to private banks in their bid to meet priority sector lending.

Anand Sinha, deputy governor, RBI, says the move creates a level playing field.

 

P C John, executive director, Federal Bank echoes a similar view. He says, "This announcement is highly positive as it will enable private sector banks, which earlier we used to give (loans) at much higher rate, to compete with PSBs in farm loans".