With government funding for banks no longer a taboo globally, India too has joined the rush to enhance the capital base of its banks.
But unlike banks in the US and Europe, which were on the verge of collapse till their governments stepped in, in India banks are well capitalised, with all public sector banks having a capital adequacy ratio (CRAR) of 10 per cent or more. In case of private banks too, there are no entities below the mandated level of 9-per cent.
Finance Minister P Chidambaram told reporters that the government would shore up the capital base of banks, which have CRAR of under 12 per cent.
According to Business Standard Research Bureau data , there were eight nationalised banks that had a CRAR between 10.01 per cent and 11.88 per cent . In addition, for three State Bank of India (SBI) associates, the CRAR is under 12 per cent.
| THE CANDIDATES | ||
| Bank | CRAR | Govt stake |
| Central Bank of India | 10.01 | 80.21 |
| Vijaya Bank | 10.47 | 53.86 |
| Bank of Maharashtra | 10.97 | 76.77 |
| Indian Overseas Bank | 11.25 | 61.23 |
| UCO Bank | 11.39 | 74.98 |
| Punjab & Sind Bank* | 11.57 | 100.00 |
| Allahabad Bank | 11.68 | 55.22 |
| United Bank of India* | 11.88 | 100.00 |
| Bank | CRAR | SBI stake |
| State Bank of Mysore* | 11.30 | 100.00 |
| State Bank of Indore* | 11.51 | 100.00 |
| State Bank of Hyderabad* | 11.72 | 100.00 |
| * As on March 2008, others at the end of June 2008 Figures in per cent | ||
While the details of the capitalisation scheme are being worked out, in the past, the government has issued recapitalisation bonds to help state-owned players to shore up their capital base. Between 1985-86 and 2000-01, the government issued bonds worth Rs 20,446 crore.
Subsequently, banks have set aside losses against the capital. Then, the government decided to subscribe to rights issues of banks to help them increase their capital base without diluting the Centre’s stake. In March, it issued bonds worth Rs 10,000 crore as its contribution to SBI’s rights issue.
“The present situation in the international financial market is quite turbulent. This has increased unpredictability. The government’s intention to help banks improve capital adequacy will put us on a stronger wicket to face unexpected circumstances,” said Bank of Maharashtra Chairman and Managing Director Allen Periera.
Punjab & Sind Bank Chairman and Managing Director R P Singh said, “This step will give confidence that bank is well-capitalised and is in position to manage risks well.” His bank, which is 100 per cent owned by the government, is planning a public offer after the government agreed to a capital-restructuring plan.
Bankers also said with the government assistance coming in, banks will have more headroom to raise tier-I hybrid and tier-II capital. If the earlier modalities are followed, government stake in these banks will increase as it will subscribe to equity. As a result, banks will get a headroom to offer fresh equity shares and still maintain the government holding. For instance, the government holding in Vijaya Bank is around 54 per cent and there is little scope for stake dilution as the Centre has to have a minimum of 51 per cent stake.
According to RBI’s estimates, for banks to maintain a CRAR of 12 per cent, the total capital requirement for the banking sector is projected to go up from Rs 2,96,000 crore at the end of March 2007 to Rs 8,64,935 crore at the end of March 2012. So the sector will need an additional Rs 5,69,000 crore over the next five years. Of this, nearly 65 per cent or Rs 3,69,115 crore will be required by public sector banks.
