Crisil expects govt infusion in PSBs to ensure capital adequacy

Rating agency Crisil expects public sector banks (PSBs) to stay adequately capitalised, as the government has started infusing funds in these and all 27 public sector banks, including the associate banks of State Bank of India (SBI), will have a capital adequacy ratio of more than 12 per cent by September.

The Reserve Bank of India (RBI) prescribes a minimum capital adequacy ratio of nine per cent for banks. The rating major expects government to continue its capital infusion plan in PSBs to support growth, as announced earlier.

“Although the PSBs have comfortable capitalisation as of now, they will need to augment capital to maintain growth in balance sheet over the medium term. Government is, therefore, expected to continue infusing capital directly or facilitating capital mobilisation by PSBs over the next few years,” said Suman Chowdhury, Head, Crisil Ratings.

In the near term, Crisil believes capital infusions in PSBs will continue as part of the Rs 16,500-crore package committed by the government. “Clearly, these measures reflect government’s commitment to ensuring that PSBs remain well capitalised even during phases of strong growth,” Chowdhury said.

The government recently said it would infuse Rs 6,200 crore in five banks to help them attain tier-I capital of eight per cent. These are IDBI Bank, Union Bank of India, UCO Bank, Bank of Maharashtra and Central Bank of India. SBI, the country’s largest ban,k is also expected to request the government for capital infusion of Rs 20,000 crore in the current financial year by a rights issue of equity shares.

In 2008-09, the government had infused Rs 1,900 crore in four PSBs and Rs 1,200 in 2009-10. In the current financial year, the government has committed Rs 16,500 crore as additional capital to help the banks maintain a Tier-I CAR in excess of eight per cent by March 2011.