Govt to infuse Rs 6,000 cr into PSU banks

BANK RECAPITALISATION: Move aimed at improving Tier-I capital to 8%

The government would provide an additional Rs 6,000 crore capital to state-owned banks in financial year 2011-12 to help them maintain at least eight per cent capital adequacy ratio in Tier-I level, Finance Minister Pranab Mukherjee said on Monday while presenting the Union Budget for 2011-12 (April-March) at the lower house of the Parliament.

“Banks will need additional capital as they continue to grow their balance sheet. The capital support plan announced on Monday will help banks meet the rising credit demand,” M Narendra, chairman and managing director of Indian Overseas Bank, told Business Standard.

The Chennai-based lender expects to get Rs 1,054 crore capital from the government, which will improve its Tier-I capital adequacy ratio to over eight per cent. Indian Overseas Bank’s Tier-I capital adequacy ratio stands at 7.58 per cent.

“I don’t think we are in the list (of banks) that will get capital next year. As we continue to grow our business, we will need more capital. But we have not asked for more funds at this point in time,” said Narendra.

In the current financial year, the government has provided Rs 20,157 crore capital infusion for state-owned banks. The move has helped the government to increase its stake to 58 per cent in a few banks, besides strengthening the lenders’ capital base.
 

CAPITAL ADEQUACY RATIO Govt shareholding and Tier-I capital of some public sector banks
Bank	Government’s stake in %	Tier-I capital adequacy ratio in %
Andhra Bank	51.55	7.06
Bank of Baroda	53.81	7.70
Bank of India	64.47	7.97
Bank of Maharashtra	76.77	7.38
Central Bank of India	80.20	6.10
Dena Bank	51.19	7.20
Indian Overseas Bank	61.23	7.58
Punjab National Bank	57.80	7.58
UCO Bank	63.59	7.47
Union Bank of India	55.43	7.44
Source: National Stock Exchange &  Banks’ press releases

In June 2010, the government had provided Rs 6,211 crore capital in five state-owned banks — Bank of Maharashtra, Central Bank of India, IDBI Bank, UCO Bank and the Union Bank of India.

In the most recent round of recapitalisation plan announced earlier this month, funds will be given to Allahabad Bank, Corporation Bank, Dena Bank, Indian Overseas Bank, UCO Bank and the United Bank of India.

“(The announcement is) positive for the banking industry with proposed capital infusion to enable banks strengthen their capital adequacy levels and fund expansion of operations,” Credit Analysis & Research (CARE Ratings) said in a note.

The existing rules mandate banks to maintain their capital adequacy ratio at nine per cent with a minimum six per cent Tier-I capital.

Analysts said the implementation of revised capital adequacy norms or Basel III has prompted the government to strengthen the capital base of domestic public sector banks. Basel III norms are proposed to be implemented by December 2012.

On an aggregate basis, Indian banks' capital adequacy ratio was 11.7 per cent under Basel III at the end of June. Tier I capital adequacy ratio of Indian banks, according to the new norms, was estimated at nine per cent.

Under Basel III norms banks are expected to maintain a capital adequacy ratio of 10.5 per cent and tier I adequacy of 8.5 per cent.