PSBs can raise upto Rs 160825 crore from the market by bringing down GOI holding to 52%
The Union Cabinet chaired by the Prime Minister, gave its approval for allowing Public Sector Banks (PSBs) to raise capital to meet their additional capital requirements under BASEL-III by diluting Government holding upto 52% in a phased manner.Out of 27 PSBs, Government of India controls 22 through majority holding. In the remaining 5 banks, SBI holds majority stake. These 27 PSBs control 70% of total branches, deposits and credit in the Indian banking system. Gol has regularly been infusing incremental capital in PSBs.
Basel-Ill capital adequacy norms will be fully phased in and applicable by 31.3.2019. Capital requirements of banks have increased under Basel-Ill.
As per Basel-Ill norms the minimum Tier-1 has to be 7%. In addition, Banks require another 2.5% of Common Equity as Capital Conservation Buffer. In all, Banks need a total of 9.5%. The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone. The main concern of Gol primarily pertains to Common Equity Tier-I capital of 5.5%.
Going by past trends if we take average Gross Domestic Product (GDP) growth rate for the next five years as 6.5% and dividend pay-out ratio as 20% as percentage of net profit or 0.80 of risk weighted assets and credit growth rate at 18% and further RWAs growth at 16%, the total capital would be Rs 460120 crore (Rs 239720 crore Common Equity Tier-I) (Rs 155900 crore Additional Tier-I) and (Rs 64500 crore Tier-II).
The total support provided to PSBs towards capitalization during the last four years stands at Rs 58634 crore. The provision for the current year is at Rs 11200 crore and the total market cap of Government shareholding as on 30 May 2014 stands at Rs 419711 crore.
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If the PSBs are permitted to bring down GOI holding to 52% in a phased manner, they can raise upto Rs 160825 crore from the market. Gol budgetary support needed for 2015-19 would be Rs 78895 crore only, which will maintain Gol holding at 52%. However, as Govt. is likely to receive an amount of Rs 34500 crore from PSBs as dividend, the net outgo will only be Rs 44395 crore.
While permitting banks to raise capital from the market, the banks would be advised to preserve the Government holding at minimum 52% and increase the public shareholding in a phased manner through the issue of shares largely to retail investors that is to common citizens of this country.
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