‘Govt can cut PSB stake below 51% to reduce Basel-III burden’

* RBI Governor thinks aloud on options to capitalise PSBs to be Basel-III ready

Written by ENS Economic Bureau | Mumbai | Published: September 5, 2012 12:42 am

Reserve Bank Governor D Subbarao on Tuesday said diluting the government stake in public sector banks below 51 per cent could be one of the options before the government to capitalise them to be compliant with Basel-III requirements. PSU banks will need capital in the range of Rs 70,000 crore-Rs 1,00,000 crore to be Basel-III ready.

“Clearly,providing equity capital of this size in the face of fiscal constraints poses significant challenges. A tempting option for the government would be to issue recapitalisation bonds against common equity infusion. But this will militate against fiscal transparency,” Subbarao said at the Ficci-Indian Banks Association summit here.

“In the alternative,would the government be open to reducing its shareholding in PSBs to below 51 per cent? If the government decides to pursue this option,an additional consideration is whether it will amend the statute to protect its majority voting rights,” he said.

Subbarao added that should the government choose to maintain its shareholding at the current level,the recapitalisation burden would swell to Rs 90,000 crore. However,if it reduces shareholding in every bank to a minimum of 51 per cent,the burden would reduce to under Rs 70,000 crore. The RBI’s estimates project an additional capital requirement of Rs 5 lakh crore for all banks,of which non-equity capital will be of the order of Rs 3.25 lakh crore while equity capital will be of the order of Rs 1.75 lakh crore.

On the issue of the market meeting this magnitude of equity capital,Subbarao said,“Data indicates that the amount that the market will have to provide will be in the range of Rs 70,000 crore – Rs 1,00,000 crore depending on how much the government will provide. Over the last five years,banks have raised equity capital to the tune of Rs 52,000 crore through the primary markets,” and raising this Rs 1-lakh-odd crore over the next five years would not be an insurmountable problem.

Subbarao also said the final report of the Basel Committee on global systematically important banks (GSIBs),which is being awaited,could find some large domestic banks being named as domestically systematically important banks (D-SIBs). “We are waiting for the finalisation of these norms and when these norms come up,some domestic institutions might be designated as D-SIBs.”

The curious case of the ‘CRR panel’

RBI Governor D Subbarao on Tuesday said in his inimitable way,what he felt about the tussle over the CRR issue.

Before beginning his speech at the Ficci-IBA conference,Subbarao said that he had appointed a committee to debate whether to do away with the cash reserve ratio (CRR),the portion of deposits that banks are required to park with RBI.

“The members of that committee are Dr KC Chakrabarty and Pratip Chaudhuri,” Subbarao said,keeping a straight face. “Both of them will be locked up in a room,will not be released until they have reached a conclusion,and the timeframe is that they will not submit their report before my term as governor is over.”

However,both Chakrabarty and Chaudhuri continued their spat in public. “I think he meant it as a joke. Of course,I hold the view it (CRR) is not helping anybody,” Chaudhuri said. Chakrabarty retorted: “First make up your mind whether you want to listen or not. There is no question of a debate on a regulatory issue.” ENS

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