Government To Infuse Additional Rs 20K Crore In PSBs?

It has been heard that in the upcoming budget the government may come up with a plan to infuse nearly Rs 20000 crore as additional capital in the public sector banks (PSBs) for the next fiscal. This step will be taken to meet the Basel III global capital risk norms. As per the capital requirement plan that was submitted to the Ministry of Finance, PSBs would require about Rs 20000 crore in 2013-14.

This announcement is likely to be made by the Finance Minister P Chidambaram in the Union Budget due on February 28, 2013. In January 2013, the Finance Minister had said that capital can only be provided by shareholders. In effect, this statement points at the government, as it is the major shareholder in all the PSU banks. He has said that he would like to see the government maintain its control and majority shareholding in them. The FM also commented that the government is dedicated to keep all the state-owned banks financially sound and healthy to ensure that the growing credit needs of the economy are adequately met.

The Basel III capital regulations implementation is envisaged to enhance the requirement of core equity capital by banks due to higher capital ratios. The Basel III capital ratios will be fully phased in by March 31, 2018. However, the RBI has extended the implementation date for Basel III by three months to April 1, 2013. In the current fiscal, the government has approved infusion of Rs 12517 crore in around 10 state-owned banks so far. As for the previous two fiscals, the government has infused about Rs 20,117 crore in the banks during 2010-11, and Rs 12,000 crore in 2011-12.

The RBI estimates that the exchequer will need to pump in an additional Rs 90000 crore to retain its shareholding in PSBs at the existing level to meet the Basel III norms over the next 5 years. At present, the government has two options – to maintain its shareholding at the current level by capital infusion or to bring down its shareholding to 51%. However, the infusion requirements will put some more pressure on the government’s finances as it will need to pump in the funds. We look forward to the budget to see how the government takes a step forward in implementing the Basel III norms.