Rs 90k-cr govt infusion in banks needed after Basel-III: Subbarao

Reserve Bank of India (RBI) Governor D Subbarao on Tuesday said the government would need to infuse Rs 90,000 crore in public sector banks to maintain its current shareholding after the Basel-III norms would come into force.

He said the burden could come down to less than Rs 70,000 crore if the government was willing to reduce the shareholding to 51 per cent.

“If the government opts to maintain its shareholding at the current level, the burden of recapitalisation will be of the order of Rs 90,000 crore. On the other hand, if it decides to reduce its shareholding in every bank to a minimum of 51 per cent, the burden would be reduced to under Rs 70,000 crore,” said Subbarao. He was addressing the annual Ficci-IBA banking conference here.

Subbarao said the government would be tempted to issue recapitalisation bonds against common equity infusion. “However, this will militate against fiscal transparency,” he said. He asked whether the government would be open to reducing its shareholding in public sector banks to below 51 per cent. In that case, he added, an additional consideration would be to amend the statute to protect the government’s majority voting rights.

The governor said Indian banks had raised equity capital to the tune of Rs 52,000 crore through the primary markets over the last five years. Hence, raising an additional Rs 70,000 crore to Rs 1 lakh crore over the next five years from the markets should not be an insurmountable problem, he added.

He said the extended period of full Basel-III implementation spread over five years gave sufficient time to banks to plan the timeline of their capital-raising over that period. The banking regulator had put out the final guidelines on Basel-III norms in May 2012. Indian banks have been given time from January 2013 to March 2018 to comply with the new norms.

According to RBI estimates, Indian banks would require additional capital of Rs 5 lakh crore to meet Basel-III norms by March 31, 2018. That includes non-equity capital of Rs 3.25 lakh crore and equity capital of Rs 1.75 lakh crore.

Subbarao said the return on equity of the Indian banking system was expected to decline for a short term on the adoption of Basel-III norms. The average return has been about 15 per cent for the last three years. He concluded that effective implementation of Basel-III norms would make Indian banks stronger and more stable and sound so that they could deliver value to the real sectors of the economy.