 "PSBs expected to raise Rs 9.60 lakh cr in 10yrs: Report")
Public sector banks (PSB) are estimated to raise Rs 9.60 lakh crore in 10 years period ending March 2021 assuming loan growth of 20%, said a report by consultancy firm KPMG.
"Assuming an annual credit growth rate from FY12-FY21 at 20% and the annual risk weighted asset growth rate at 22%, ...The Tier-I capital requirement for public sector banks for the same period to be in the range of Rs 9,60,000 crore," the report said.
The government's intent to not dilute their stake leaves them with few options including creation of a holding company (Holdco) and transfer its stake in the PSBs to this company, it said.
There are 26 PSBs in the country, including five subsidiaries of the State Bank of India.
Another option for the government could be to consider diluting its stake in PSBs through issuance of Differential Voting Rights (DVR) such that the economic stake dilution is also kept to the minimum, it said.
"The government may also consider in the future on having a Golden share in each of the PSBs under which while the government's economic and voting stake may fall below 51%, it will always have the right to control the respective PSBs due to the possession of this Golden share," it said.
The implementation of new Basel-III norms will affect the investor returns. They have to look at a longer horizon, where a stable financial system will ensure a better and less volatile return, it said.
With the new capital norms coming into effect, sectors like retail will be attractive as these require less capital, it said.
On the issue of merger and acquisition, the government and the RBI will have to drive consolidation amongst the large PSBs to create 'large banks' by mandating the merger of identified banks.
PSBs have market share of about 70% in the country while private sector and foreign banks operate in the remaining space.
"This will be a significant departure from the previously stated non-interventionist policy of the finance ministry and the RBI, and as expected, will require great political will power and many levels of dispute resolution models," it said.
"Assuming an annual credit growth rate from FY12-FY21 at 20% and the annual risk weighted asset growth rate at 22%, ...The Tier-I capital requirement for public sector banks for the same period to be in the range of Rs 9,60,000 crore," the report said.
The government's intent to not dilute their stake leaves them with few options including creation of a holding company (Holdco) and transfer its stake in the PSBs to this company, it said.
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The Holdco can raise long-term debt from domestic and international markets to infuse equity in the PSBs and act as an investment company for the government, it said.
There are 26 PSBs in the country, including five subsidiaries of the State Bank of India.
Another option for the government could be to consider diluting its stake in PSBs through issuance of Differential Voting Rights (DVR) such that the economic stake dilution is also kept to the minimum, it said.
"The government may also consider in the future on having a Golden share in each of the PSBs under which while the government's economic and voting stake may fall below 51%, it will always have the right to control the respective PSBs due to the possession of this Golden share," it said.
The implementation of new Basel-III norms will affect the investor returns. They have to look at a longer horizon, where a stable financial system will ensure a better and less volatile return, it said.
With the new capital norms coming into effect, sectors like retail will be attractive as these require less capital, it said.
On the issue of merger and acquisition, the government and the RBI will have to drive consolidation amongst the large PSBs to create 'large banks' by mandating the merger of identified banks.
PSBs have market share of about 70% in the country while private sector and foreign banks operate in the remaining space.
"This will be a significant departure from the previously stated non-interventionist policy of the finance ministry and the RBI, and as expected, will require great political will power and many levels of dispute resolution models," it said.