State-run banks to knock on North Block doors for funds

Finance Ministry gameplan to alter dynamics of public sector banks

Public sector banks will approach the Centre for funds as it has reinforced that government holding will not fall below 51 per cent.

"As of now this is the government policy. Should the bank need capital, we can approach the government because we are a public sector bank," said A K Khandelwal, chairman and managing director, Bank of Baroda.

The finance minister on Friday said government holding would not be allowed to fall below 51 per cent, thereby barring many banks from raising capital through equity dilution.

About 75 per cent of banking assets remain in government control, which considering bank's need for future capital to meet Basel-II norms, could become an issue for tax payers, said senior bankers.

Government holding in Dena Bank and Vijaya Bank is just a little over 51 per cent at 51.19 per cent and 53.87 per cent respectively. In four other banks, the government stake hovers around 60 per cent including Allahabad Bank (55.23 per cent), Corporation Bank (57.17 per cent), Punjab National Bank (57.8 per cent), and IDBI Bank (58.48).

"We feel we would be able to generate enough profits to meet our growth aspirations for the next two years even including meeting requirement of Basel II norms," said M V Nair, chairman and managing director, Dena Bank.

He said with a capital adequacy ratio of 11.9 per cent, the bank's growth aspirations will be met. At the same time, he did not rule out the possibility of approaching the government for additional funds "once the bank was doing well".

A lot of banks have been mobilising funds through tier-II bonds, which is a continuous exercise. "We can always go for preference capital or tier-II funding. Alternatively, we can also churn our asset portfolio through securitisation of our retail book," Nair said. Dena Bank was close to finalising securitisation of some of its retail assets.

Banking analysts saw P C Chidambaram's statement on Friday as a public posture as "he has to cater to certain interested political parties of the UPA government."

When Manmohan Singh was invited to form the government, he had stated that nationalised banks would remain in the public sector. He had then stated that public banks would not be barred from raising capital through the public offer route provided government equity remains above 51 per cent.

The Bank Nationalisation Acts of 1970 and 1980 ensures that government holding stands at a minimum of 51 per cent in nationalised banks.