PSBs to wait for capital

The finance ministry is likely to take a call on capital infusion in public sector banks, including the country's largest lender, the State Bank of India, for the current financial year by the middle of next month.

"By Monday-Tuesday (October 31 or November 1) we (Committee on Capital Requirements of Financial Institutions) will hopefully decide about the capital infusion for banks," Financial Services Secretary D K Mittal said after a meeting of the committee.

The proposal will go to Finance Minister Pranab Mukherjee for his approval, which would likely be cleared by November 15. It will then head for the Cabinet.

About five -six banks, including the SBI, Bank of Baroda, Syndicate Bank and Union Bank of India would need capital infusion in the current financial year, he said.

For this year, the finance ministry official said, "The requirement in different scenarios for public sector banks is between Rs 10,000 crore and Rs 20,000 crore."

The ministry has already ruled out rights issue for SBI. After Moody's had downgraded SBI by a notch on the basis of its low capital adequacy ratio and deteriorating asset quality, bank chairman Pratip Chaudhuri said the action highlights the urgency for recapitalisation of the state-owned lender.

"It (rating action) is a reminder to the bank and all the shareholders that the recapitalisation measures require greater urgency," Chaudhuri had said. The government has already earmarked Rs 6,000 crore towards capital infusion in the state-owned banks during 2011-12 and the additional amount would be sought through second batch of supplementary demands for grants to be tabled in the winter session.

The government had provided capital support to the tune of Rs 20,157 crore to public sector banks during 2010-11. Those who got funds last financial year included Punjab National Bank, Bank of Baroda, Union Bank of India, Oriental Bank of Commerce and UCO Bank. The committee, headed by Finance Secretary R S Gujral, is examining proposals for capital requirement.

By 2021, banks have to meet Basel III norms as well.

With India set to implement Basel III norms on capital adequacy, Mittal said the PSU banks would require Rs 3.5 lakh crore in the next 10 years.