The government today allowed public sector banks to raise up to Rs 1.60 lakh crore from markets by diluting government holding to 52 per cent in phases so as to meet Basel III capital adequacy norms.
"The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone," an official statement said, detailing the decision taken by the Cabinet, headed by Prime Minister Narendra Modi, to allow PSBs to raise equity capital from market.
The Cabinet asked the PSBs to broadbase retail shareholding while going in for the fund raising.
Out of 27 PSBs, Government of India controls 22 through majority holding. In the remaining 5 banks, state-run SBI holds majority stake.
"If the PSBs are permitted to bring down Government holding to 52 per cent in a phased manner, they can raise up to
Rs 1,60,825 crore from the market," it said.
The Basel III norms, which will come into effect from March 31, 2019, were put in place following the 2007-08 financial crisis triggered by the fall of Lehman Brothers.
The norms are aimed at improving risk management and governance while raising the banking sector's ability to absorb financial and economic stress.
As per Basel-Ill norms, the minimum Tier-1 has to be 7 per cent.
The total support provided to PSBs towards capitalisation during the past four years was Rs 58,634 crore, the statement said, adding the provision for the current year is at Rs 11,200 crore.
The total market cap of Government shareholding as on May 2014, stands at over Rs 4.19 lakh crore.
