MUMBAI: The government may announce a major capital infusion into public sector banks, or PSBs, in the forthcoming Budget enabling them to lend more.
The capital infusion will not put any pressure on the fiscal deficit since the funds will come from a World Bank commitment of $2 billion to the government-controlled banks. Senior bankers, who asked not to be named, said that names of the beneficiary banks are likely to be announced in the Budget.
In September 2009, the World Bank had agreed to lend $4.3 billion to India, which included $2 billion to state-owned banks and around $1.9 billion of capital to the Indian Infrastructure Finance Company (IIFCL).
In August last year, the finance ministry had asked all PSU banks how much more capital they needed to maintain a 12% capital adequacy ratio if they were to grow credit by 20-25%. It had also asked banks for their own capital raising plans.
Capital adequacy refers to the funds, primarily shareholders’ equity, which banks have to set aside for every Rs 100 they lend.
In response to the government’s missive, Union Bank of India had asked for Rs 1,800 crore while Bank of Maharashtra and Syndicate Bank had said that they would require Rs 1,500 crore each over the next three years. Dena Bank had asked for Rs 1,200 crore, up from the Rs 900 crore it had indicated a year ago. Indian Overseas Bank and Oriental Bank of Commerce have sought Rs 1,000 crore each.
Officials from Punjab & Sind Bank said that they have requested for a sum in the range of Rs 500-700 crore, while Andhra Bank had asked for Rs 1,150 crore. The government is yet not announced its final decision on allocation of capital to each bank.
In the 2009 interim budget, the government allocated Rs 3,800 core to banks whose capital adequacy ratio had sank below 12%. It gave Rs 1,200 crore to Vijaya Bank and UCO Bank and Rs 1,400 crore to Central Bank of India. However, the government, so far, has disbursed only the first tranche to UCO Bank (Rs 450 crore), Central Bank (Rs 700 crore) and Vijaya Bank (Rs 500 crore).
The latest capital infusion is particularly important for Dena Bank, Andhra Bank and Oriental Bank of Commerce where the government holding is very close to the minimum threshold of 51%, making it difficult for them to directly access the equity market.
Sources said that these bank are likely to receive a part of the World Bank loan in form of tier I capital. “The government may raise its shareholding well above 51% in these banks, giving them a buffer to dilute government holding later by way of public issue,” said banking sources.
Source : The Economic Times