Though Indian banking system, in particular state-owned banks, is receiving accolades for not letting the global financial crisis disrupt its balance sheet, there is another trouble staring at its face--uncertainty over capital infusion from the government, its principal shareholder.
A host of state-owned banks has cancelled equity raising plans after share markets started heading south since April.
Moreover, government holding in at least seven banks is just a shade above the stipulated minimum of 51%, thus ruling out any chance of tapping the primary equity market for funds. As decreasing the government's stake or raising resources from the share market is out of question, capital infusion by the government seems to be the only way out.
"Capital is required to meet the new Basel-II framework and support growth. Since many banks are near the threshold limit of what the minimum government should hold, there is a need for capital infusion by the government," Albert Tauro, chairman and managing director, Vijaya Bank, told NewsWire18.
On Oct 22, giving relief to several state-owned banks, then Finance Minister P Chidambaram had said the government will recapitalise seven state-owned banks having capital adequacy ratio below 12 per cent.