Govt's stake dilution may not solve PSU banks' capital needs: RBI deputy governor

Says PSU banks must increase participation in the financial markets

State-run lenders' need for additional capital is likely to continue even if the government pares its holdings in these banks, the Reserve Bank of India's (RBI) deputy governor R Gandhi said on Saturday.

"Recently, it has been reported that the government is contemplating scaling down their holdings in public sector banks to 52%. This may not be sufficient to fully meet the capital needs of the public sector banks under Basel III norms particularly since the projections are based on minimum requirements," Gandhi said while addressing a seminar organised by the Bengal Chamber of Commerce and Industry in Kolkata.

India has implemented Basel III capital framework from April 1, 2013. While the capital adequacy ratio for Indian banks under this new framework was at a satisfactory level of 12.8% at the end of September, 2014, it is expected that lenders will need to raise additional money to sustain even a moderate compound annual growth rate (CAGR) in risk-weighted assets.

It is estimated that public sector banks will require close to Rs 4.5 lakh crore in tier 1 capital, including Rs 2.4 lakh crore of equity capital.

The government has infused Rs 58,600 crore of capital in state-run banks in the last four financial years and plans to provide another Rs 11,200 crore in 2014-15 (April-March). The capital infusion by the government has broadly been carried out by way of preferential allotment of equity by the banks.

Gandhi feels that this may not be sufficient and suggested that state-run banks should actively consider options like non-voting rights share capital, differential voting rights share capital, golden voting rights share capital, etc. 

"Public sector banks will have to chart out a clear capital raising plan over the next five years," he said.

Separately, Gandhi urged state-run banks to increase their participation in the financial markets and strengthen their treasury function.

"A selected set of foreign banks and the new private sector banks dominate the financial markets in India. Public sector banks need to engage proactively, especially in the derivative instruments for hedging their risks. Treasury function is relatively weak in public sector banks. Well established and robust treasury is a must for the purpose," he said.

He added that state-run lenders must build up specialisation and should have sufficient number of specialists for their treasury function.