 "Govt may pump Rs 20k cr into PSBs")
The Union government might infuse about Rs 20,000 crore in public sector banks (PSBs) in the current financial year, against Rs 11,200 crore provided in the interim Budget. However, as even this would not be enough to meet their capital requirements, the finance ministry has asked them to tap the markets, particularly private shareholders, while bringing down their non-performing assets (NPAs).
"It was assessed that the government mighty need to infuse about Rs 25,000 crore in PSBs this year. At the moment, we are planning to get approval for Rs 18,000-20,000 crore in the Budget (to be tabled by the new government)," said a ministry official, requesting anonymity.
According to official estimates, assuming average annual growth of 20 per cent in their loan book, PSBs will need Rs 8 lakh crore over the next five years to fully meet the Basel-III norms-the global standard to improve regulation, supervision and risk management - by March 2019. They will need Rs 5 lakh crore if their risk weighted assets grow by 15 per cent rather than 20 per cent.
"Out of Rs 5 lakh crore needed, Rs 2 lakh crore is Tier-I capital. We are pressuring banks to come up with their share and the balance we will give," said another finance ministry official.
The capital will be needed to expand the loan book and provide for NPAs, which rose to 5.17 per cent (gross) of their advances at end-December 2013, against 4.18 per cent a year before, and were expected to be around 12 per cent including the restructured assets. The economic slowdown might accentuate the problem, the reason the finance ministry has asked banks to check the problem.
"Why are they assuming that their NPAs will continue to remain high? The banks must reduce their bad loans and tap the markets for additional capital. The government cannot meet all your needs. Private shareholders can increase their stake but they wait for markets to go up," explained the official.
If non-government shareholders increase stake in PSBs, the government holding will come down but the ministry is willing to pare it as long as it's more than 51 per cent. Banks can raise additional resources through a rights issue, follow-on public issue and qualified institutional placement (QIP).
"The requirement of PSBs is substantial and the government can't clearly put that money. So, they are forcing banks to sell NPAs. The government should bring down its holding below 51 per cent in PSBs. But the finance ministry enjoys picking up those huge dividend cheques from the banking sector," said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.
In a press conference after the interim Budget, Finance Minister P Chidambaram had also urged these banks to raise their own resources, as it was a good corporate and business practice. "There are various kinds of capital - Tier I, Tier-II, etc. They should raise capital. The government will provide whatever it can afford to provide…Banking is a very special business, where additional capital is required every year," he had said.
The government had infused Rs 14,000 crore in 20 PSBs in 2013-14. About Rs 12,500 crore was provided to 13 state-owned banks in 2012-13. In 2011-12 and 2010-11, the government gave Rs 12,000 crore and Rs 20,000 crore, respectively.
Since the government gives capital from budgetary resources, it puts pressure on the fiscal deficit. In Budget 2012-13, it had proposed to create a financial holding company to raise resources to meet PSBs' capital requirements. The proposal was, however, put on the back burner by Chidambaram.
"It was assessed that the government mighty need to infuse about Rs 25,000 crore in PSBs this year. At the moment, we are planning to get approval for Rs 18,000-20,000 crore in the Budget (to be tabled by the new government)," said a ministry official, requesting anonymity.
According to official estimates, assuming average annual growth of 20 per cent in their loan book, PSBs will need Rs 8 lakh crore over the next five years to fully meet the Basel-III norms-the global standard to improve regulation, supervision and risk management - by March 2019. They will need Rs 5 lakh crore if their risk weighted assets grow by 15 per cent rather than 20 per cent.
"Out of Rs 5 lakh crore needed, Rs 2 lakh crore is Tier-I capital. We are pressuring banks to come up with their share and the balance we will give," said another finance ministry official.
The capital will be needed to expand the loan book and provide for NPAs, which rose to 5.17 per cent (gross) of their advances at end-December 2013, against 4.18 per cent a year before, and were expected to be around 12 per cent including the restructured assets. The economic slowdown might accentuate the problem, the reason the finance ministry has asked banks to check the problem.
"Why are they assuming that their NPAs will continue to remain high? The banks must reduce their bad loans and tap the markets for additional capital. The government cannot meet all your needs. Private shareholders can increase their stake but they wait for markets to go up," explained the official.
If non-government shareholders increase stake in PSBs, the government holding will come down but the ministry is willing to pare it as long as it's more than 51 per cent. Banks can raise additional resources through a rights issue, follow-on public issue and qualified institutional placement (QIP).
"The requirement of PSBs is substantial and the government can't clearly put that money. So, they are forcing banks to sell NPAs. The government should bring down its holding below 51 per cent in PSBs. But the finance ministry enjoys picking up those huge dividend cheques from the banking sector," said Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services.
In a press conference after the interim Budget, Finance Minister P Chidambaram had also urged these banks to raise their own resources, as it was a good corporate and business practice. "There are various kinds of capital - Tier I, Tier-II, etc. They should raise capital. The government will provide whatever it can afford to provide…Banking is a very special business, where additional capital is required every year," he had said.
The government had infused Rs 14,000 crore in 20 PSBs in 2013-14. About Rs 12,500 crore was provided to 13 state-owned banks in 2012-13. In 2011-12 and 2010-11, the government gave Rs 12,000 crore and Rs 20,000 crore, respectively.
Since the government gives capital from budgetary resources, it puts pressure on the fiscal deficit. In Budget 2012-13, it had proposed to create a financial holding company to raise resources to meet PSBs' capital requirements. The proposal was, however, put on the back burner by Chidambaram.