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Govt to take stock of banks' capital

The government is likely to take stock of the capital requirement and overall performance of the Indian banks in the wake of their recent downgrade due to rising level of bad assets.

india Updated: May 28, 2012 02:11 IST
Mahua Venkatesh

The government is likely to take stock of the capital requirement and overall performance of the Indian banks in the wake of their recent downgrade due to rising level of bad assets. Finance minister Pranab Mukherjee could also meet bank chiefs to assess the capital needs in the wake of the stringent Basel III norms that help in risk management.

Government banks may require about Rs. 1,00,000 crore in the next five years to be able to meet with the increased credit demand and comply with the Basel III norms. The government now has to find out ways to raise the required amount. This may not be an easy task given the current economic situation and widening fiscal deficit.

Mukherjee, while presenting the Union Budget for 2012-13 announced infusion of Rs. 15,888 crore into government banks as part of a recapitalisation exercise for the current financial year. The amount will help banks, that have been hit by a liquidity crunch, push credit growth and strengthen their balance sheets.http://www.hindustantimes.com/Images/Popup/2012/5/28_05_BIZ-04.jpg

"There are several issues which need to be sorted out if the growth story is to be maintained, we need to look at meeting credit demands even as interest rates have increased, we need to take stock of the situation," a senior finance ministry official who did not wish to be identified told HT.

Indian banks — public and private — which stood tall during the financial crisis in 2008-09, have not managed to escape unhurt this time, with the level of non-performing assets swelling, thanks to the recent Supreme Court judgment scrapping all 122 telecom licences and the battered aviation sector.

"Non-performing assets for banks have already risen substantially and it needs to be addressed otherwise more banks could be downgraded," an analyst on condition of anonymity said.

The World Bank, which has already provided Rs. 20,000 crore for bank recapitalisation, indicated that it would be open to providing further funds to the government if approached.