Boosting banks' capital base

To help select public sector banks strengthen their capital base and comply with Basel-III norms, the government decided to infuse Rs 12,500 crore into these. While industry analysts say capital infusion will lead to marginal improvements in the banks’ capital adequacy ratios, it will ensure these lenders comfortably comply with the new regulations.

According to Basel-III norms, banks need to maintain a minimum capital adequacy ratio of nine per cent, in addition to a capital conservation buffer, in the form of common equity at 2.5 per cent of risk-weighted assets. The common equity in

Tier-I capital must be 5.5 per cent of risk-weighted assets and the minimum Tier-I capital adequacy ratio must be seven per cent. Basel-III norms will come into effect from April 2013 and banks will have to implement these by March 2018.

The table below shows the impact of capital infusion on capital adequacy ratios of some banks
 

CAPITAL ADEQUACY RATIOS OF STATE-RUN BANKS
Bank	Proposed  capital infusion (in Rs cr)	Before capital infusion		After capital infusion
		Capital adequacy ratio (%)	Tier-I ratio (%)	Capital adequacy ratio (%)	Tier-I ratio (%)
SBI	3,004	13.35	9.69	13.6	9.99
PNB	1,248	12.40	9.39	12.8	9.75
BoB	850	13.69	10.35	14.0	10.62
BOI	809	11.53	8.50	11.8	8.79
Union Bank of India	1,114	11.95	8.73	12.5	9.31
IOB	1,000	12.31	7.87	12.9	8.49
United Bank of India	100	12.61	8.99	12.8	9.16
Note: Capital adequacy ratio and Tier-I ratio before capital infusion is calculated after adding profit to net worth and is as of September 30, 2012 Source: Banks & analysts