Govt banks need Rs 35k cr by '12

FinMin seeks 5-yr growth road map from banks to assess their capital needs.

Public sector banks, barring State Bank of India, will have to raise around Rs 35,000 crore by 2012 to maintain Tier-I capital adequacy ratio of 8 per cent, according to an assessment by the finance ministry.

Banking sources said the assessment, based on the growth projections provided by these banks, factored in the headroom available to raise Tier-II equity and debt.

The exercise was aimed at assessing the recapitalisation needs of 17-18 public sector banks. The government would meet a part of the funding needs from a World Bank loan of $3 billion (around Rs 15,000 crore) while the rest would come from fund-raising by banks and budgetary support, official sources told Business Standard.

 

While the broad assessment has been done, the government has asked public sector banks for their growth plans for the next five years along with projections for earned and retained profits. The government wants to assess how much capital banks will need in the next five years to maintain an overall capital adequacy ratio of 12 per cent, which is higher than the regulatory mandate of 9 per cent.

“We have provided the projections and told the government the amount that we can generate through plough-back of profits,” said a chief of a public sector bank.

In October-November 2008, the government had said it intended to provide capital to banks to help them grow and maintain a capital adequacy ratio of 12 per cent.

With the minimum government holding in these banks at 51 per cent, around 12 banks do not have any headroom to tap equity markets. So, the government would either subscribe to these banks’ rights issues or provide money through other instruments, sources said.

“The government has not discussed the instruments for infusing capital. The option of a rights issue or a preferential allotment to the government remains open,” said the chairman of a mid-sized public sector bank.

Earlier this year, the government had infused capital through non-cumulative perpetual debt instruments in three banks — Central Bank of India, UCO Bank and Vijaya Bank.

Several banks will need more capital to meet the demand for credit. Public sector banks have indicated that areas from where strong credit demand is expected include infrastructure, which is widely seen as a good asset class in an economic downturn.

In addition, banks are concerned about rising delinquencies in some market segments —for example, from higher receivables and inventories in the SME space and mid-sized corporate borrowers and weaker cash flows of overleveraged large corporate borrowers. Some additional capital will also be required for salary revisions and pensions, branch expansion to deepen financial inclusion and adoption of new technology.