Public sector banks (PSBs) might soon start tapping the markets to meet their capital adequacy requirements. Financial Services Secretary G S Sandhu on Tuesday said the government would shortly come up with a plan for capital infusion in state-owned lenders.
“One of the important things recently announced was bank recapitalisation to meet the challenges for a growing economy and a high trajectory. The ministry is preparing a blueprint on this and raising capital from the market and from other potential resources,” Sandhu said at an Assocham event. “We will very soon bring capital infusion plan in state-run banks to the Cabinet. It’s almost ready.”
The government provided for Rs 11,200 crore for bank capitalisation in the Budget for the current financial year. As part of the recapitalisation plan, the government also is considering bringing down its equity in PSBs to 52 per cent from 58 per cent at present.
Currently, the government holding in banks ranges between 56.26 per cent (Bank of Baroda) and 88.63 per cent (Central Bank of India). As per the norms, it cannot come below 51 per cent else banks will lose their public sector character.
“If banks have to raise money from market then the (government) stake has to come down then only they can raise money. That is part of our paper,” Sandhu said. He added the instrument for share sales in banks will be partly qualified institutional placement and partly public.
Public sector banks require equity capital of Rs 2.4 lakh crore by 2018 to meet global Basel III norms on capital adequacy. The government was considering various other options for recapitalisation, including setting up special purpose vehicle (SPV) to which a bank transfers its real estate assets at market rate. The bank then can pay rental or lease to the SPV to create an income stream for it. Based on this income stream, the SPV will raise money from the market.
Capital adequacy is important to meet the credit requirement of productive sectors of the economy. However, besides raising capital, the government banks need to bring down their non-performing assets by way of recovery, else a good part of the capital infusion will go into writing off bad debts. Last year, PSBs wrote-off NPAs worth Rs 25,311 crore and recovered only Rs 27,623 crore.
The government had infused Rs 12,500 crore, Rs 12,000 crore and Rs 20,000 crore in 2012-13, 2011-12 and 2010-11, respectively.
Last year, it had infused Rs 14,000 crore. Also, it gave in-principle approval to nine banks in 2013-14 for raising capital from market as and when needed.