Capital infusion in PSBs to be in cash: govt

Expects lenders to maintain 3 per cent interest margin.

The government will infuse Rs 16,500 crore of capital into public sector banks (PSBs) in the cash form in the next financial year, according to Financial Services Secretary R Gopalan, who was speaking at a function to inaugurate State Bank of India’s (SBI’s) 1000th branch in 2009-10.

The government had subscribed to SBI’s rights issue in 2008 by issuing special bonds.

This clarity on mode of capital infusion assumes significance, since SBI had to make provision for erosion in the value of SBI bonds due to hardening of yields at end of March 2009. This portfolio of SBI bonds of about Rs 10,000 crore is marked-to-market.

 

Gopalan said the government would decide the amount to be infused depending on the credit outstanding, Tier-I capital requirement, and the risk-weighted average of individual banks at the end of March.

The budgeted amount (Rs 16,500 crore) does not take into account the capital needs of SBI. Though the bank expressed preference for rights issue to maintain the government holding, it is yet to convey specific requirements to the government.

The government has signed a pact with the World Bank for $3-billion loans to recapitalise public sector banks. According to rating agency Icra, public sector banks will require capital of over Rs 1 lakh crore over the next two years to maintain a capital adequacy of 12 per cent and meet their business plans.

On the performance targets for public sector banks, Gopalan said credit growth should be around 20 per cent for the next financial year. The government expect banks to have a net interest margin of about 3 per cent and return on assets at 1 per cent.

On new banking licences, he said they should not pose a disadvantage to existing banks. "We do not have enough banks in our country. So, we have started this financial inclusion. The government wanted additional footprints, so we requested the Reserve Bank of India whether additional banks could be opened," he said.

However, the only question remained as to who should get the licence, which would be revealed only when RBI comes up with the guidelines, he said, adding that RBI would ensure a level-playing field for existing banks, while allowing new players who have to operate on a pan-India basis.

In the Union Budget, Finance Minister Pranab Mukherjee had said RBI would consider giving licences to private sector players and non-banking finance companies to foray into the commercial banking space.