Capital infusion in PSBs to be in cash: govt

Source:BS Reporter / Mumbai March 21, 2010, 0:13 IST


The government will infuse Rs 16,500 crore of capital into 

public sector banks (PSBs) in the cash form in the next

financial year, according to Financial Services Secretary 

R Gopalan, who was speaking at a function to inaugurate

State Bank of India’s (SBI’s) 1000th branch in 2009-10.

The government had subscribed to SBI’s rights issue
in 2008 by issuing special bonds.

This clarity on mode of capital infusion assumes significance,
since SBI had to make provision for erosion in the value of SBI
bonds due to hardening of yields at end of March 2009.
This portfolio of SBI bonds of about Rs 10,000 crore is marked-to-market.

Gopalan said the government would decide the amount to be
infused depending on the credit outstanding, Tier-I capital
requirement, and the risk-weighted average of individual banks
at the end of March.

The budgeted amount (Rs 16,500 crore) does not take into
account the capital needs of SBI. Though the bank expressed
preference for rights issue to maintain the government holding,
it is yet to convey specific requirements to the government.

The government has signed a pact with the World Bank for $3-billion loans
to recapitalise public sector banks. According to rating agency Icra, public
sector banks will require capital of over Rs 1 lakh crore
over the next two years to maintain a capital adequacy of 12 per cent
and meet their business plans.

On the performance targets for public sector banks,
Gopalan said credit growth should be around 20 per cent
for the next financial year. The government expect banks
to have a net interest margin of about 3 per cent and return on
assets at 1 per cent.

On new banking licences, he said they should not pose a
disadvantage to existing banks. "We do not have enough
banks in our country. So, we have started this financial inclusion.
The government wanted additional footprints, so we requested
the Reserve Bank of India whether additional banks could be opened," he said.

However, the only question remained as to who should get
the licence, which would be revealed only when RBI comes up
with the guidelines, he said, adding that RBI would ensure a
level-playing field for existing banks, while allowing new players
who have to operate on a pan-India basis.

In the Union Budget, Finance Minister Pranab Mukherjee
had said RBI would consider giving licences to private
sector players and non-banking finance companies to foray
into the commercial banking space




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