The government will likely infuse more capital into state-owned banks and financial institutions (FIs) to ensure that their capital reserves do not remain uncomfortably close to the minimum stipulated levels for a longer period of time.
Economic affairs secretary R Gopalan will chair a meeting of senior officials and bank executives to discuss a framework for keeping banks’ and FIs’ capital muscle sufficiently strong over a 10-year period.
The committee would also look into the possible methods of capital infusion into these FIs and banks.
Global ratings agency Moody’s recently downgraded the credit rating of State Bank of India (SBI), the country’s largest lender. It blamed the pull-down to a shortage of capital in SBI to cushion bad loans or contingencies and “weakening asset quality”— implying loans that do not yield interest.
The process of government’s additional capital infusion of about Rs 4,500 crore into SBI would be completed by December or maximum by March-end.
The capital support is aimed at strengthening banks’ tier I or equity capital, a senior government official who did not wish to be identified said. According to regulatory requirements, banks are required to maintain a minimum of 8% tier-I capital.
“The meeting would focus on the needs of the banking industry,” the official said.