FinMin asks banks to review non-core operations

The Finance Ministry has asked public sector banks to review their exposure to non-core operations like insurance ventures to conserve capital and promote banking operations.

"We also want banks to look at their non-core area operation. Some of the banks have gone into non-core areas," a senior Finance Ministry official said.

"They (banks) should look at non-core area investment when big global banks are exiting from their non-core areas and conserving capital," he said.

Many banks, including State Bank of India, Punjab National Bank, Bank of Baroda and Canara Bank, have many joint ventures in non-core business like life insurance, non-life insurance, mutual funds, etc.

This assumes significance as government is in the process of infusing Rs 12,000 crore into about 12 public sector banks to enhance their capital base.

At the same, there is huge requirement of capital to meet Basel III, the global capital norms for banks. The global norms scheduled to kick in from January 1 this year has been deferred by another three month.

RBI, however, did not provide reasons behind the rescheduling.

RBI had issued guidelines on the implementation of Basel III capital regulation in India in May last year. These guidelines were to be implemented from 1 January 2013 in a phased manner and were to be fully implemented by March 2018.

As per the new global norms, banks will have to hold core capital of at least 7 per cent of risk weighted assets by 2018.

Last year, RBI Governor D Subbarao had said Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms, Basel III.

Of the total Rs 5 lakh crore, equity capital will be Rs 1.75 lakh crore, while Rs 3.25 lakh crore will have to come as the non-equity portion.

The government, which owns 70 per cent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the public sector banks at the current level to meet the norms.