The government said nationalised banks need not return equity since they would require more capital once the Basle II norms, which prescribe higher capital adequacy levels, came into effect. | "Some nationalised banks had approached the government for returning equity as part of their capital restructuring. But we have decided that in anticipation of increased capital requirement under the Basle II accord, return of equity from nationalised banks is not needed," a finance ministry statement said. |
| This means banks like Punjab National Bank, Oriental Bank of Commerce, Andhra Bank and Bank of Baroda will not be able to improve their earnings per share before a second public offer. These banks had approached the government last year to return capital provided to them in the form of recapitalisation bonds. |
| When contacted, some bank chiefs expressed disappointment over the government's decision, but did not elaborate on the future action to be taken. The announcement follows the RBI's view that banks may require further recapitalisation to raise their capital adequacy ratios from 9 per cent now. |
| The government was planning to charge a premium on the issue price of the recapitalisation bonds to reflect the present value of listed banks' scrips. |
| The banking division in the finance ministry had proposed three options to the finance secretary: redemption of the recapitalisation bonds at par, the initial public offer price, or the historical cost of equity to the government (face value plus interest paid by the government less the dividend received). |
| Punjab National Bank (Rs 130 crore), Oriental Bank of Commerce (Rs 50 crore) and Bank of Baroda (Rs 98 crore) had announced plans to return equity. Andhra Bank had returned Rs 50 crore in March, and planned to return another Rs 50 crore during the current financial year. |
| The Centre pumped Rs 20, 446 crore into public sector banks between 1985-86 and 2001-02, which were invested by the banks in recapitalisation bonds. |
| In the last three financial years, Rs 609.96 crore has been returned by the banks that had tapped the market. Over the years, banks like Punjab National Bank, Andhra Bank, Bank of India and Vijaya Bank, to name a few, have returned equity to the government. |
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