The government will infuse up to Rs 4,500 crore into State Bank of India (SBI), the country's largest lender, to help bolster its reserves and shore up its capital adequacy ratio (CAR) to stipulated levels after a credit ratings downgrade hit the bank amid an economic slowdown that hurt interest incomes.
As of June, the bank's CAR, which is a measure of the back-up money a bank has to withstand loan uncertainties, stood at 11.6%.
Of this, Tier-I capital, which broadly refers to shareholder equity, stood at 7.6 % - a little below the 8 % - desired by the government.
"SBI will need something like Rs 12,000 crore (to achieve 8% capital adequacy). Internal accrual will be around Rs 7,500 to Rs 9,000 crore...So the gap (of Rs 3,000-4,500 crore) will certainly have to be funded by us," financial services secretary DK Mittal said on Tuesday.
{{/usCountry}}"SBI will need something like Rs 12,000 crore (to achieve 8% capital adequacy). Internal accrual will be around Rs 7,500 to Rs 9,000 crore...So the gap (of Rs 3,000-4,500 crore) will certainly have to be funded by us," financial services secretary DK Mittal said on Tuesday.
{{/usCountry}}Last week, global ratings firm Moody's downgraded the credit rating of SBI and blamed the pull-down on a shortage of capital in the SBI to cushion bad loans or contingencies and "weakening asset quality" - implying loans that do not yield interest.
The process of capital infusion in SBI would be completed by December or latest by March-end.
"(SBI) may not be going for public issue or rights issue. This may not be the right time to raise money from the market," Mittal said, adding the government was looking a various "innovative" options to capitalise public sector banks.
The government currently holds 59% stake in the bank.
"We are really concerned and pained at the way SBI has been downgraded. The SBI has been unnecessarily downgraded," Mittal said.
The proposed capital capital infusion by the government in SBI and possible cash infusion in other public sector banks will likely force the government borrow more this year and may push up fiscal deficit to about 5.5% of GDP from the budget estimates of 4.6%.
Already, government borrowing this year is set to touch a record Rs 4,70,000 crore and at least 12.5% higher than budget estimates, and is expected by economists to go up further.