Finance Minister Pranab Mukherjee on Saturday said the government will provide adequate capital to the state-owned banks during the current financial year, a move that will help them to meet the international solvency norms.
"I would like to reassure, that I will provide adequate capital to the banks as and when necessary...There should be no apprehensions about bank recapitalisation," he said while speaking at a function here.
He said he had already earmarked Rs 6,000 crore for recapitalisation of public sector banks in the budget for 2011-12. "I have already earmarked Rs 6,000 crore this financial year, if need be more would be provided," he said.
Mukherjee's assurance to recapitalise the PSU banks comes within weeks of rating agency Moody's downgrading the outlook of the Indian banking sector to 'negative' from 'stable'. However, another rating agency Standard&Poor's has upgraded the ratings of the Indian banks saying that they are well regulated.
During the current fiscal several lenders, including SBI, Bank of Baroda, Syndicate Bank and Union Bank of India would need fresh capital to meet the global solvency norms.
The government during 2010-11 had provided capital support to the tune of Rs 20,157 crore to public sector banks. The lenders which got funds from the government last fiscal include Punjab National Bank, Bank of Baroda, Union Bank of India, Oriental Bank of Commerce and UCO Bank.
Referring to the ongoing euro zone crisis, he admitted it would impact on growth prospects. "The euro zone crisis will impact our high growth trajectory and may even impact out journey on the path of fiscal consolidation," he said.
RBI KEEPING AN EYE ON RUPEE MOVEMENT
At another function in New Delhi, he said the Reserve Bank was "keeping an eye" on the rupee, which had depreciatted to a 32-month low against the US dollar.
"The Reserve Bank of India (RBI) is keeping an eye on it (depreciation of rupee). They are watching the situation at the appropriate level," Mukherjee said at a function here. His comments came a day after the Indian rupee plunged to a 32-month low, below Rs 51 per US dollar, on persisting demand for the US currency from banks and importers.
At the Interbank Foreign Exchange, the domestic currency closed 44 paise lower at Rs 51.34/35 per dollar yesterday. The market was abuzz with speculation that RBI has asked public sector banks to release dollars to arrest the fall of the rupee.
Asked what would be a comfortable rate of exchange and the likelihood of intervention by the central bank, Mukherjee said, "I am not guessing anything, and I am not finding what is a comfortable level. I am depending on the advice of the RBI."
The rupee is the fourth most depreciated currency in the world and the most depreciated in the Asian continent. The RBI has attributed the movement to demand-supply factors and said it was happening globally.
A weaker rupee is a matter of concern for India as it depends on imports for over 70 per cent of its oil and gas requirements and the depreciation of the local currency has made imports more expensive.
The depreciation of the rupee comes at a time when headline inflation has remained above the nine per cent mark for 11 consecutive months. Earlier this week, RBI Deputy Governor Subir Gokarn had said the apex bank will intervene in the foreign exchange market only to arrest volatility.
"We intervene when there is a very strong movement in a particular direction or extreme volatility and the objective is to smooth that volatility and not fix a rate," he had said. He had said the RBI would opt for open market operations to manage liquidity in the system only if there is stress and not to influence government bond yields.
