Reserve Bank of India (RBI) Governor D Subbarao on Saturday said the government might have to reduce its stake in public sector banks that need to raise Rs 1.6-1.75 lakh crore in additional capital requirement for meeting the Basel-III norms by March 2018.
Given the constraints arising out of the fiscal deficit, it would be difficult for the government to infuse additional capital at this level into the public sector banks on its own, he said, while addressing a meet on risk management here on Saturday.
"There will be alternatives before the government either to reduce share holding to 50 per cent or slow down their growth," Subbarao said, while raising the basic question: "Can public sector banks mobilise this sort of capital, or can the government give this sort of capital?".
Developed by the Basel Committee on Banking Supervision, a set of measures, including a certain level of capital requirement, were prescribed under Basel-III norms aimed at strengthening the banking system from possible risks . RBI has set a deadline of March 2018 for Indian banks, both in public and private sector, to complete the compliance of these norms.
"Our own system show that after accounting for whatever banks will generate by way of internal accruals and interest earnings, banks should raise additional capital of Rs 1.6 to Rs 1.75 lakh crore," Subbarao said.
However, he was hopeful that private banks could raise the capital to meet additional capital requirement. "They probably can, because Rs 500 billion was raised by them in the last five years," he said.
The governor said in a rapidly globalising world, national and international stability are interlinked.
Referring to the financial crisis in 2008-09, he said though price stability and macro economic stability were important they alone do not guarantee financial stability.