Finmin considers additional grants for bank recapitalisation

The finance ministry will consider options such as preferential allotment, warrants, convertible shares and a holding company structure which can raise money globally to meet the capital requirements of Rs 10,000-20,000 crore of public sector banks, including the State Bank of India, this year.

The government is also willing to provide additional capital in the supplementary demand for grants in the upcoming Winter Session of Parliament. The banking division has asked the budget division for additional supplementary demand for grant apart from the Budget provision of Rs 6,000 crore. “I have taken some money into account for providing the support to the banks for capitalisation, including regional rural banks, and if additional sum is required, I’ll go for supplementary,” Mukherjee said at the Economic Editors’ conference on Wednesday.

The minister said adequate resources would be provided for recapitalisation of PSU banks, but the government had to take into account both resource mobilisation and expenditure constraints too. He said the government was committed to ensuring eight per cent Tier I or equity capital in all the PSU banks.

A finance ministry official said extra budgetary resources could be considered to meet capital requirements of banks. Five to six PSU banks, including SBI, Bank of India, Bank of Baroda, Syndicate Bank and Indian Bank would need capital infusion during the current fiscal.

The official ruled out a rights issue for SBI this year, but said the government could give Rs 3,000-4,000 crore through preferential allotment. A final call on SBI’s recapitalisation will be taken after November 15 once the Committee on Capital Requirements for Financial Institutions submits its report.

Besides, the ministry is also considering holding company for all banks which can raise money globally. The ministry has asked all PSU banks to come out with details of their capital requirements for the next ten years, which could go as high as Rs 3.5 lakh crore.

During 2010-11, the government had provided capital support to the tune of Rs 20,157 crore to public sector banks. The lenders which got funds includes Punjab National Bank and Bank of Baroda.

Meanwhile, the Reserve Bank is likely to come out with guidelines on allowing new private banks by November end, Financial Services Secretary DK Mittal said on Wednesday. “RBI is actively working on the guidelines...And is likely to come out with the final licencing norms by November,” he told reporters.