Capital for public sector banks will take time

The government seems to be in no hurry to push through the public sector banks' (PSBs) request for capital infusion and financial restructuring.

PSBs would first be expected to raise capital based on the Reserve Bank of India's (RBI) guidelines on tier-II and tier-III capital expected to be finalised by the end of this month.

"The banks should first explore raising subordinate debts and hybrid instruments based on what the RBI proposes," a senior finance ministry official said. Dena Bank's proposal for additional capital infusion of Rs 400 crore about five-six months ago is pending with the finance ministry.

The government is also considering asking the Indian Bank to implement some specific measures before its request for financial restructuring is sanctioned.

The bank had requested the finance ministry to approve of a scheme for writing off accumulated losses of Rs 3,830 crore against its paid-up capital of Rs 4,594 crore.

Oriental Bank of Commerce (OBC), which has been showing robust growth in business, had also made a presentation to the government for capital infusion.

At present, the government holds a 51 per cent stake in both OBC and Dena Bank.

"We have told the government that our capital adequacy ratio (CAR) would hover around 9 per cent if we grow at 25 per cent. We would need additional capital to maintain a cushion and take care of future growth," M V Nair, chairman of Dena Bank, said. The bank's CAR stands at 9.29 per cent.

"We would be able to maintain 9 per cent after providing for market risk by March 2006 as per the Basel II norms," Nair added. Dena bank posted a loss of Rs 140 crore in September 2005.

Indian Bank has been profitable for the last three years, but after providing for statutory appropriations it is left with nothing to reduce accumulated losses.

"We have a CAR of 14 per cent and our capital requirement is only to meet credit growth. The initial public offer would be small as we would like to test the market and then aim at a larger public issue three years down the line," K C Chakrabarty, CMD, Indian Bank, said.

The bank earned a net profit of Rs 408 crore last year, which had to be put into statutory, capital and investment fluctuation reserves.