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This is an archive article published on April 26, 2015

IBA prepares recap road map, govt set for infusion

Centre had decided to infuse R6,990 cr in 9 PSBs out of current year’s budget

The government had decided to infuse Rs 6,990 crore in nine PSBs out of the current year’s budget. The government had decided to infuse Rs 6,990 crore in nine PSBs out of the current year’s budget.

The government is set to go for the second round of capital infusion into public sector banks in May with the Indian Banks Association (IBA) getting ready with the new recapitalisation road map as required by the finance ministry.

The government had decided to infuse Rs 6,990 crore in nine PSBs out of the current year’s budget to strengthen their capital base in February, 2015. As the capital infusion was done on the basis of their efficiency in performance, the remaining banks were in a quandary. In the next round, these banks are likely to get the capital.

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The finance ministry has already indicated that the government’s allocation of capital to banks will be reviewed and it will be on the basis of business plan/strategy for raising capital. The banks will make a presentation on their strategies to raise the capital from market before a committee chaired by the minister of state for finance. The infusion may take place by May 2015.

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The committee on capital infusion set up by the IBA has proposed that geographical factors should be considered while injecting fresh equity into public sector banks. IBA formed the committee to suggest new criteria which can be considered by the finance ministry while taking decisions on capital infusion. The committee will submit its report next week.

Among other things, the committee has suggested that the finance ministry should consider “geographical factor” so that the banks located in the underdeveloped regions could match in performance with banks located in other parts of the country.

“So the banks located in the eastern sector shouldn’t lose out. Secondly, banks which have major overseas presence should also be given special considerations as international banking is not doing well,” said a member of the panel. “In both the segments return on capital will be lower,” the official said.

The finance ministry has replaced the system of statement of intend (SOI) given by the banks with key performance indicators (KPI). Financial services secretary Hasmukh Adhia advised IBA chairman to work out KPI at the IBA level with inputs from banks.

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SBI chairman Arundhati Bhattacharya, in a meeting attended by top ministry officials and bankers, expressed the view that a road map should be drawn by the government for providing recapitalisation support to banks.

Minister of state for finance, Jayant Sinha told bank chiefs that “the banks should work out/find out their own resources for raising capital and also work out a plan for raising capital from the market.” The view in the official circles is that banks should have a base line board validated capital raising strategy. They can go into the niche market and also explore the possibility of selling their non-core business.

PSBs would require about Rs 530,000 crore of capital for Basel-III compliance by 2019, of which Rs 1.6 lakh crore should come from the government.

Strategy based

# FinMin has indicated that the govt’s allocation of capital to banks will be reviewed and it will be on the basis of business plan/strategy for raising capital

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# PSBs would require about Rs 530,000 crore of capital for Basel-III compliance by 2019

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