Stake sale in state-run banks an option to infuse capital

Even as the capital requirement of state-run banks is adequate now, the government must pump in Rs.240,000 crore over the next five years to ensure their health, even as stake sale remains an option, a top central bank official has said.

"There have been numerous discussions on the need and ability of the Indian banks to raise additional capital to support their business, going forward," said Reserve Bank of India Deputy Governor S.S. Mundra at an investors' conference here Wednesday.

Yet, for banks to meet their minimum capital requirements, buffers and provide for stressed assets, the government's contribution to their equity has to be around Rs.240,000 crore up to March 31, 2019, he added.

"With the emphasis on fiscal consolidation by the Government of India, the leeway earlier available to the public sector banks to approach the government for additional capital will be limited," he said.

"Hence, one of the options for the government could be to reduce its stake in some of the public sector banks which presently ranges from 56.26 percent to 88.63 percent."

According to Mundra, the capital of Indian banks linked to their exposures stood at a comfortable level of 12.9 percent at the end March 2014. While for state-run banks it was 11.38 percent, for private and foreign banks it was in excess of 16 percent.

"Going ahead, the capital position of the banks, especially the public sector banks, is likely to come under some strain, both in terms of quantity and quality," he said, spelling out the reason for such large capital infusion required for these banks.