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Govt banks may hit market to raise funds

business Updated: May 18, 2014 22:59 IST
Mahua Venkatesh
NDA government

The new NDA government is set to nudge public sector banks to hit the market to raise funds. The government’s stake is much above the stipulated 51% in most state-owned banks and there is enough headroom to garner a sum of over Rs 2 lakh crore over the next three years if they decide to go to the stock markets, a person familiar with the development said.

“The (new) government will have to look into the issue of recapitalisation of banks at the earliest and one of the avenues to raise big resources is to launch public offers without diluting the fabric of these banks,” the source said.

The outgoing UPA government, in the interim budget, provided Rs 11,200 crore to public sector banks as recapitalisation exercise. However, bankers said that this sum was inadequate. Sources within the NDA indicated that an additional amount could be earmarked for the recapitalisation exercise in the full budget, expected to be presented in July.

According to the Reserve Bank of India, an additional Rs 5 lakh crore would be required by the banks to meet the stringent Basel III norms, under which all banks will have to shore up their capital adequacy ratio. Banks have been allowed to implement Basel III norms in a phased manner by March 2019.

A roadmap is also likely to be chalked out mapping the recapitalising strategy for public sector banks. “This could be the top agenda for the new finance minister, while a larger sum is likely to be allocated to these banks for recapitalising them, a concrete strategy also needs to be in place for them to meet the stringent Basel III norms,” a senior finance minister official said.

“The recapitalisation exercise will be critical and it must be the focus of the new government…a concrete roadmap will be helpful as capital infusion alone will not be sufficient,” Soumya Kanti Ghosh, chief economic adviser, State Bank of India said.