PSBs need higher capitalisation to deal with NPAs: RBI

Follow on public offer and capital infusion by government are two ways to raise capital, says RBI Deputy Governor

Reserve Bank of India (RBI) Deputy Governor R Gandhi on Monday said public sector banks (PSBs) needed higher capitalisation than budgeted to strengthen their balance sheets and deal with non-performing assets (NPAs).

“Need capital infusion for three things — to meet Basel-III rules, better provisioning and improving banks' business,” he added in New Delhi.

Follow-on public offers (FPOs) and capital infusion by the government were two ways to raise capital, he said.

For the current financial year, the government had allocated Rs 7,940 crore in the Budget for capital infusion in PSBs and has pledged to provide more in the ongoing financial year.

Union Finance Secretary Rajiv Mehrishi had said the government plans to infuse Rs 57,000 crore in PSBs in two years.

“What we are aiming at is an infusion of about $3 billion in the current year and perhaps twice as much in the next year. So, that is the broad time schedule — whether it will happen in August or January, I can't say,” Mehrishi had said. “It doesn't have to wait for the Budget because it is a process that is ongoing and we can always seek additional funds within the supplementaries. So, it doesn't have to wait for the Budget.”

The government has already assessed the capital requirement of PSBs, after receiving presentations by them.

The central bank had earlier also flagged concerns over inadequate capital infusion. Last week, RBI Governor Raghuram Rajan had said banks should have enough capital, so that they can clean up their balance sheet.

“The way to get out of financial stress is to address the problem early... and some of the banks may need some capital to do that. Hopefully this capital infusion will help,” he added.

Even RBI Deputy Governor S S Mundra had also said earlier that the amount budgeted for investment in PSBs wasn’t enough.

According to an estimate, PSBs would need additional capital of Rs 2.40 lakh crore by 2018 to meet the Basel-III capital adequacy norms. Keeping these in mind, the Union Cabinet in December 2014 had allowed PSBs to raise up to Rs 1.60 lakh crore from markets by diluting the government holding to 52 per cent in phases.