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Banks to tap markets for raising funds

india Updated: Jul 11, 2014 01:31 IST
Union Budget 2014-15

Finance minister Arun Jaitley’s first Union budget has chalked out a roadmap to raise resources for public sector banks.

Banks would be allowed tap the market and expand the equity capital by mobilising capital requirement through public offerings to retail investors.

Jaitley said that there are several banks where the government holding is high which can easily be brought down without diluting the character of the bank.

“It can be brought down to 55%... I not not going to get it below 51%. The government will continue to hold majority shareholding,” Jaitley told Hindustan Times.

The fresh capital would be raised from retail investors, Jaitley added in his speech, though the shareholding of people would be increased in a phased manner.

This means that the role of institutional investors, both domestic and foreign, would be limited.

In his speech Jaitley had said that financial stability is the foundation of a rapid recovery and our banking system needs to be further strengthened.

The finance minister added that to be in line with Basel-III norms there is a requirement to infuse Rs 2.4 lakh crore as equity in our banks by 2018 and that there would be a need to raise additional resources to fulfill this obligation.

However, according to the Reserve Bank of India (RBI), 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 ratios.

Banks have been allowed to implement Basel III norms in a phased manner by March 2019.

The outgoing Manmohan Singh-led 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.