SBI, 14 other banks to get Rs 16k-cr funds by March

Source  : BS :Vrishti Beniwal / New Delhi December 30, 2011, 0:41 IST



About two months after the Moody’s downgraded outlook on Indian banks on concerns over asset quality, the finance ministry has proposed to infuse Rs 15,000-16,000 crore in about 15 public sector banks by March 31, 2012. More than one-third of this amount (Rs 6,000 crore) is likely to go to the country’s largest lender, State Bank of India, while the demand for most other banks is less than Rs 1,000 crore each. SBI saw its financial strength rating cut by Moody's earlier this fiscal.


Those who are not likely to get capital infustion include Canara Bank and Central Bank of India.


To shore up the capital base of public sector banks amid rising bad loans, the Department of Financial Services, is seeking an additional Rs 10,000 crore in the third supplementary demand for grants to be tabled in the Budget session of Parliament in February, which might further distrub the fiscal consolidation story. The Budget had provided for Rs 6,000 crore for bank recapitalisation in 2011-12 and nothing from this has been given to banks yet. “We need to strengthen the capital base of our banks at a time when non-performing assets (NPAs) are rising. Almost all banks will be recapitalised, including those which have a tier I capital (core capital including equity and disclosed reserves) of 8 per cent and above,” said a finance ministry official.
The department has written to the banks asking them to take all necessary approvals and be prepared for capital infusion after Parliament’s approval is received by the end of the financial year.


However, another official in the Department of Economic Affairs, which will sanction the requirements, said a final decision on actual requirement of banks this year would be taken after looking at the capital adequacy ratio (CAR) and tier I of the banks at the end of quarter ending December 31, 2011.


CAR or a ratio of bank’s capital to its risks signifies a bank’s health. The higher the CAR, the better is the financial condition of the bank. Finance Minister Pranab Mukherjee has repeatedly said that the government was committed to 8 per cent Tier I capital, core measure of a bank’s financial strength, in all public sector banks by March 2012.


Another official said since the government’s fiscal situation was tight only those banks would be capitalized which have a tier I of 8 per cent or lower in December-end.


Globally the tier I requirement is only 4 per cent, but in India the regulator has fixed it at 6 per cent and the government wants it higher at 8 per cent to provide adequate buffer. For CAR, the regulatory requirement is 9 per cent, but the government wants it above 12 per cent.


The Planning commission has already given its approval for a Plan allocation of Rs 14,000 crore for bank recapitalisation this year. Last year also the government had infused over Rs 20,000 crore in banks.


Meanwhile, a committee headed by Finance Secretary Rs Gujral, has assessed the capital infusion needs of state-run banks over the next 10 years. The report, awaiting the approval of the finance minister, is expected to be released next month. The panel may suggest a holding company structure which can raise money globally to meet the capital requirements of banks. However, the government would not take that route to infuse capital this year since there is very little time left.


Capital infusion became critical for Indian banks after Moody's downgraded outlook on the banks to 'negative' from 'stable' over concerns that domestic monetary tightening and a potential global economic crisis would severely affect their profitability and asset quality. NPAs rose 34 per cent in July-Sep 2011. It had also lowered SBI's financial strength rating in view of its deteriorating asset quality.


SBI was earlier planning to come up with a right issue of Rs 20,000 crore, but the government was not willing to subscribe to the issue given its fiscal situation. The Centre's fiscal deficit has already toched 6.7 per cent of GDP in the first half of this fiscal. For the first seven months, fiscal deficit stood at over 74 per cent of the Budget target for the entire 2011-12. The target is to rein in fiscal deficit to 4.6 per cent of GDP in this financial year against 4.7 per cent in the last fiscal.

Govt to infuse Rs 2 lakh cr into banks by 2020

Source :BS:PTI:New Delhi:12:15 ist


The government plans a whopping Rs 2 lakh crore capital infusion into the state-owned banks spread over 10 years, to help them meet fund requirement and comply with the Basel-III capital adequacy norms.


"[Capital infusion is] estimated at Rs 2 lakh crore by 2020 in public sector banks," D K Mittal, Secretary Department of Financial Services told PTI.



The government, sources said, will be looking at various instruments to pump more capital into the state-owned banks.



"One of the instruments being looked into is non-voting shares," an official said, adding the efforts would help the banks to meet Basel III requirements.


Non-voting shareholders get better returns than normal shareholders on their investment but have no voting rights.


Implementation of the Basel III norms is scheduled to commence from January 1, 2013, and has to be completed by January 1, 2019.

The official further said the Government would like to keep a buffer in its shareholding of banks at around 58% as it would provide it "enough legroom" to maintain a controlling stake even it does not participate in the capital raising exercise by any bank.

The government is required to keep a minimum of 51% equity in public sector banks.

Basel III is the new international regulatory framework designed to correct the deficiencies in regulation that led to the global financial crisis of 2008. It seeks higher capital adequacy ratio to meet any financial exigency.

The RBI is examining the Basel III regulations and would issue guidelines to the extent applicable for banks operating in India in due course of time.

There are 26 public sector banks, including SBI and its subsidiaries.

Govt to provide capital to PSU banks

Source :Sidhartha, TNN | Sep 30, 2011, 01.26AM IST


NEW DELHI: With the government ruling out stake dilution below 51%, the finance ministry is assessing the capital requirement of state-run lenders over the next decade, raising the possibility of using innovative fund raising tools such as differential voting right shares (DVRS) and golden shares, besides dusting out old files on the holding company structure.

Bankers and government officials told TOI that the department of financial services has set up a committee under joint secretary Alok Nigam and bank chiefs, which has been tasked to look into the issue. The panel is learnt to have met for the second time on Tuesday and its recommendations are expected to be finalized over the next few months.

Banks were also asked to submit their capital requirements to fund their growth plans, which they have done. Sources said one of the key areas that the committee would look at is ensuring sufficient availability of capital without putting extra strain on the government balance sheet in view of the rising fiscal deficit levels.

As a result, the proposals on golden shares and DVRS are back on the table. A golden share will give the government power to exercise veto power even if it holds one share. Similarly, a public sector bank can issue shares where the voting right is capped at, say, 10%, something that has already been tried by large conglomerates such as the Tatas and the AV Birla group. In case of companies, which are already allowed to issue these shares, the Companies Act stipulates that DVR shares should not exceed 25% of the share capital. These shares are also entitled to receive dividends and bonus.

In 2007, State Bank of India had for the first time proposed issuing DVRS but the move did not materialize as the government did not take a view. Another proposal which did the rounds earlier - the one for setting up a holding company - too is being discussed in banking circles. Under this model, a new company would be set up, which will hold stake on behalf of the government in public sector banks. The move will help the government rein in its spending as the holding company will do the fund-raising.

While the government has already provided over Rs 30,000 crore to public sector banks over the last three years, faster economic growth is putting pressure on banks to provide more loans to companies and individuals. With the law barring government from lowering its stake below 51%, the lenders find it tough to raise funds through issue of fresh shares as it would result in dilution of the Centre's shareholding. Over the last few years, new tools such as issue of preference shares, perpetual equity and rights issue have been used to provide equity to public sector banks.

Rs 16,500 cr to be infused into 13 banks in 2010-11

Source:BS Reporter / Mumbai March 27, 2010, 0:59 IST
The government has identified 13 public sector banks for capital infusion of Rs 16,500 crore during the next financial year. This is to ensure that public sector banks have Tier-I capital of 8 per cent.

Speaking to reporters after the meeting of the High Level Co-ordination Committee on Financial Markets (HLCC), Finance Secretary Ashok Chawla said: “The banks have been identified. My understanding is 13 banks and the amount is Rs 16,500 crore.”

As on December 31, at least four banks had Tier-I capital of less than 8 per cent. UCO Bank’s Tier-I capital was 6.5 per cent, IDBI Bank’s Tier-I capital was 6.6 per cent, Bank of Maharshtra ’s Tier-I capital was below 8 per cent and for Central Bank of India it was 7.14 per cent.

Tier-I capital of some of the other banks is expected to fall below 8 per cent by the end of March with the loan growth picking up in the fourth quarter. It was muted for the first nine months of 2009-10.

According to the Reserve Bank of India (RBI) norms, banks have to maintain a minimum capital adequacy ratio of 9 per cent, with Tier I capital of at least 6 per cent.

The country’s largest lender, State Bank of India (SBI), which is also aiming for a rights issue to raise Rs 10,000-20,000 crore, did not apply for capital infusion, said R Gopalan, secretary, department of financial services.

The committee reviewed the developments in the financial market and deliberated on several issues related to the development of the corporate debt market, the budget announcement on setting up of the Financial Stability and Development Council (FSDC) and the Financial Sector Legislative Reforms Commission and the report of the Committee on Investor Awareness and Protection.

While answering a question on having a super-regulator, Chawla said, “We are still discussing the broad contours of what the body (FSDC) will do and what will be the composition. It has not yet been finalised.”

The meeting was also attended by RBI Governor D Subbarao, Chief Economic Advisor, Ministry of Finance, Kaushik Basu, Securities and Exchange Board of India Chairman CB Bhave, Insurance Regulatory and Development Authority Chairman J Hari Narayan and Pension Fund Regulatory and Development Authority Chairman GC Chaturvedi.

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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Govt to inject capital into banks by May

19 Mar 2010, 1630 hrs IST, 

Source:REUTERS


MUMBAI: The government will pump Rs 90 billion

($2 billion) into state-run banks under the first phase

of capital injection, a finance ministry
official said on Friday.

"We will put in the money sometime in April or May,"
R Copeland, secretary, financial services, in the finance ministry, told reporters.