Government may allow PSBs to tap equity market, may help SBI

NEW DELHI: The government may soon allow state-run banks to tap the equity market, as it may not be able to fund their expansion plans. This would pave the way for a follow-on offer from the State Bank of India (SBI). Banks, however, will not be allowed to let the government's stake fall below 51%, a finance ministry official said. The government at present holds 58% stake in six banks and less than 58% in three.

It was a one-time provision (to bring government's stake to 58%) with the idea to let banks tap the markets when needed, the official said, adding, "This, however, does not mean that we won't infuse funds if their Tier-I capital adequacy ratio falls below 8%."

SBI, the country's largest public-sector lender, needs about Rs 20,000 crore for its expansion plans. Bank of India, too, has indicated that it will need Rs 4,500 crore over the next two years. "All options are open. We will not ask banks to go on credit contraction only because there are not sufficient funds available for expansion ," the official said. While credit growth is expected to taper significantly , banks' capital needs will increase as they expand under lending targets towards priority sectors and financial inclusion schemes.

Credit growth has slowed in the last six months to 20.6% as on August 26, compared with 23.6% in January. Last fiscal, the government infused Rs 20,157 crore in state-run banks and helped them achieve a Tier-I capital adequacy ratio at 8%. This year, it has provided for Rs 6,000 crore, of which it plans to allocate about Rs 3,000 crore for SBI. "We may also give around Rs 1,000 crore to Bank of India.

Significant disbursals are being approved for Nabard and other banks," the official added. Experts say the government will be forced to allow banks to take this route, as the capital adequacy requirement under the Basel III regime, or rules framed to fortify the banking system after the global financial crisis, is huge.

Rating agencies say Indian banks would need Rs 6-8 lakh crore over a period of nine to ten years.

Source: Economic Times