Government pumps Rs 14000cr in public sector banks
Addressing the media after a meeting with PSU banks chief today, the finance minister said that with clarity on how much capital infusion each bank needed, the government was ready to make the allocation.
October 25, 2013 / 17:42 IST
It’s a Diwali bonanza for India’s public sector banks (PSBs) with the finance ministry releasing Rs 14000 crore for their capitalisation today. The break up was decided in a meeting attended by PSB chiefs and the finance minister. What’s even better, the government has promised to give banks more than the budgeted amount of Rs 14,000 crore as capital through a second tranche that will come in before March, reports CNBC-TV18's Rituparna Bhuyan.
“The government will infuse the funds through preferential allotments.” Finance Minister P Chidambaram said after meeting chiefs of public sector banks.Also Read: Top 30 NPA accounts of PSU banks under govt scanner, says FMThe paperwork on capital infusion for government owned banks will be completed by tomorrow, after which, details will be made public. That's not all. Finance ministry sources said that there will be another round of capital infusion before the end of this fiscal. That's because the ministry estimates that with the economy improving in the coming months and the festive season offers made by the public sector banks, there will be additional requirement of capital.Moreover, the public sector banks have been told to explore avenues of raising capital from the financial markets through qualified institutional placement (QIP) and rights issue, with the condition that the government shareholding should not be diluted. This means, the banks will be able to raise capital proportionate to the capital infusion done by the government today. In fact, India's biggest bank, State Bank of India (SBI), will take a call on this within a month. “We will take decision on QIP or rights issue route within a month” said SBI chairman.According to available data, four banks, that is Indian Overseas Bank, Bank of Maharashtra, Dena and IDBI have less than 8 percent tier one capital and hence in greatest need of government support. ”We have requested the government to give us enough capital so that our tier 1 ratio comes to 8 percent” said B K Batra, Deputy Managing Editor, IDBI Bank. “As far as QIP is concerned, we'll have to go for 81 instruments and the issue in that is that you know, we will have to approach some foreign institutions for contribution because 80(1) instruments are not yet evolved fully within India. But we will definitely approach the international market if government permits us to make a QIP of 80(1) instruments” he added. Finance ministry officials made it clear that all banks that need capital will be given. Chidambaram also added that banks have got 173 project proposal exceeding Rs 250 crore each Between March and September, which are valued at Rs 3 lakh crore and several similar projects have got government clearances from bodies like CCI, which make them eligible for financing by the government owned banks.The finance minister also did some hard talk on NPA's, asking the PSBs to have special cells for recovery. Each bank has been asked to monitor top 30 NPAs in each zone. Market experts are not very enthused by the idea of banks raising capital since state owned banks are quoting at very low valuations. Also capital has to be serviced with dividends and hence in the ultimate analysis banks may not really save much on margins. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
