PSU banks may require Rs 1 lakh cr over next 5 years

State-run banks would require about Rs 1 lakh crore in the next five years to be able to meet with the increased credit and comply with the stringent Basel III norms of risk assessment. Mahua Venkatesh reports.

State-run banks would require about Rs 1 lakh crore in the next five years to be able to meet with the increased credit and comply with the stringent Basel III norms of risk assessment.

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While the finance ministry has set up a committee to chalk out a roadmap looking into the issue of infusing capital into other banks and financial institutions, the World Bank has said that it would be open to providing more funds to the government if approached. The World Bank has already provided Rs 20,000 crore for recapitalisation.

Finance minister Pranab Mukherjee, while presenting the Budget for 2012-13 announced infusion of Rs 15,888 crore into the public sector banks as part of a recapitalisation exercise for the current financial year. The amount will help banks, which have been hit by a liquidity crunch, push credit growth and strengthen their balance sheets.

“Capital requirement for public sector banks is fairly large and it would be helpful if we get World Bank funds but we must go through the terms and conditions with a fine toothcomb," Rohit Bammi, partner, advisory, KPMG told HT.

The level of bad assets in the banks is expected to swell further due to the recent Supreme Court judgment scrapping 122 telecom licences and the uncertainty in the civil aviation sector.

In October, credit rating agency Moody’s downgraded its outlook for the State Bank of India while in November, the rating agency reduced its outlook for the Indian banking industry, which has witnessed a surge in the level of bad assets in 2011-12.