Rs 14,000-crore capital infusion for PSBs

Interest subvention scheme for crop loans extended to private sector banks

Finance Minister P Chidambaram has set aside Rs 14,000 crore for the recapitalisation of public sector banks (PSBs) in FY14, compared to about Rs 12,500 crore in FY13. Experts say this is sufficient to cover their requirements and will help them in growing their business. "Rs 14,000 crore for the recapitalisation of the PSBs should be enough for the first year as the banks are already in better position as of now compared with what the norms require," said Ashwini Patil, assistant general manager (banking) at CARE Ratings.

The capital requirements of the banks will go up over the next five years as Basel-III norms would be effected from April 1 this year.

According to the Reserve Bank of India (RBI) banks will require capital infusion of about Rs 5 lakh crore over five years to comply with capital requirements norms.

"Major capital requirement for Basel-III would only come in last two years (FY17 and FY18) and first three years won't be much of a challenge for the banks," said Ehsan Syed, director (financial institutions), India Ratings.

Chidambaram also assured that capital support from the government for PSBs would be extended whenever required.

Chidambaram added that the government would provide Rs 12,517 crore to 13 PSBs before March 31. For FY13, the government had made Budgetary allocation of Rs 15,888 crore for recapitalisation of the PSBs, regional rural banks and other financial intuitions including National Bank for Agriculture and Rural Development.

The interest subvention scheme for short-term crop loans will also be extended to the private sector banks. Anand Sinha, deputy governor of RBI, said the move creates a level-playing field.

P C John, executive director of Federal Bank, said this move would enable private-sector banks to compete with PSBs in farm loans.