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Wednesday, February 18, 2015

Government may infuse Rs 18000 crore in public sector banks next fiscal

The Centre may look to infuse about Rs 18,000 crore into public sector banks next fiscal, more than doubling the allocation from the current fiscal after a number of lenders expressed concerns over their fundraising ability due to lack of support from the government.

Since the beginning of this financial year, the government has provided an assistance of Rs 6,990 crore to nine of the 26 state-run banks on the basis of two new parameters of efficiency - return on equity (RoE) and return on assets (RoA). It had budgeted Rs 11,200 crore for capital infusion this fiscal.

"We expect that banks will be able to raise about Rs 80,000 crore through their public offers. This additional support will help the government retain its stake at 52% in all public sector banks," a government official said.

Finance minister Arun Jaitley is expected to make a reference in the upcoming budget to the banks looking to set up a holding company. "Each bank will set up a holding company to bring all of its financial subsidiaries, including insurance and investment bank arms, under the ambit," another government official said, adding that under the Basel-III capital adequacy norms, the provisioning requirement will be considerably higher if banks continue to hold direct stakes in their financial subsidiaries.

As per the finance ministry's estimates, there is a requirement to infuse Rs 2.4 lakh crore as equity in public sector banks to help them meet the Basel-III norms. Rating agency Moody's had earlier this week said that weaker state run banks with low capital levels and less ability to generate capital internally will have to rely on external capital infusions.
"This will be challenging given that even strong state-owned banks have found it difficult to access the equity capital markets. Thus, capital infusions from the government are currently the only way for these banks to improve their capital ratios," Moody's said. The government infusedRs 58,600 crore between 2011 and 2014 in the state owned banks. It has allowed staterun banks to raise equity subject to the condition that its stake remains 52% at least.

Earlier this year, at the banking retreat, 'Gyan Sangam,' the government had agreed to explore the idea of setting up a Bank Investment Company, which will look into the capitalisation needs of public sector banks.

The government is reviewing the possibilities, under which a non operating holding company can raise capital. "Various options such as issuing shares with differential voting rights, or non-voting shares with insertion of protective clauses to keep government's majority status are being looked at," a finance ministry official said.

Source : Economic Times

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