To raise around Rs 16,500 crore to help recapitalise 18 public sector banks
The government has ignored the World Bank’s (WB) suggestion for a roadmap on reducing its holding in public sector banks (PSBs) as part of the loan negotiation to recapitalise them.
“They wanted certain things from us, but we told them that it was not possible for us to dilute the government holding to below 51 per cent in any of the public sector banks, given the policy that we have put in place. Now, all that has been sorted out,” said a source privy to the discussions.
The government is looking to raise around $3.5-billion (around Rs 16,500 crore based on the current exchange rate) debt to help recapitalise around 18 banks. While all the public sector banks which would get central funding have a capital adequacy ratio of well above the regulatory 9 per cent, the government has decided to bolster their capital base to ensure that their CAR stayed above 12 per cent.
The additional capital is being provided to ensure that these banks are not starved of capital for expanding their business. Some of them are nearing the 51 per cent floor on government holding. While the government announced the funding plan last October, it is yet to come out with the details.
A government official said that the loan agreement with the World Bank was close to being finalised and could be ready as early as next month.
Issues such as coupon rate and repayment schedule remained to be finalised. “We are just tying up the loose ends,” he said.
The loan would come in tranches and, depending on the requirement of each bank on the list, the government would finalise individual packages, the official added. The first tranche, which was likely to be released towards the end of the current financial year, was expected to be Rs 10,000 crore.
| WHERE BANKS STAND CAR for the year ended March 2009 | |||||
| (in %) | Govt holding | CAR | (in %) | Govt holding | CAR |
| Allahabad Bank | 55.23 | 13.11 | Indian Bank | 80.00 | 13.98 |
| Andhra Bank | 51.55 | 13.22 | IOB | 61.23 | 13.20 |
| Bank of Baroda | 53.81 | 14.05 | OBC | 51.10 | 12.98 |
| Bank of India | 64.47 | 13.01 | PNB | 57.80 | 14.03 |
| Mahabank | 76.77 | 12.05 | SBI | 59.41 | 14.25 |
| Canara Bank | 73.17 | 14.10 | Syndicate Bank | 66.47 | 12.68 |
| Central Bank | 80.20 | 13.12 | UCO Bank | 63.59 | 11.93 |
| Corporation Bank | 57.17 | 13.66 | Union Bank | 55.43 | 13.27 |
| Dena Bank | 51.19 | 12.07 | UBI | 100.00 | 13.28 |
| IDBI Bank | 52.67 | 11.57 | Vijaya Bank | 53.87 | 13.08 |
In the first round, Bank of Maharashtra, Dena Bank, IDBI Bank, Andhra Bank, Allahabad Bank and Syndicate Bank are expected to be taken up for further capital infusion.
Last year, the government had provided capital or restructured the capital base of United Bank of India, UCO Bank, Central Bank of India and Vijaya Bank. But it was met out of the budget with no external assistance.
