Business Today

Govt-led banks to get Rs 87,000-cr equity boost

In the first tranche announced earlier in June, the government had approved capital infusion of Rs 6,211 crore in the five public sector banks.

Mail Today Bureau   New Delhi     Last Updated: October 14, 2010  | 11:02 IST

The finance ministry on Wednesday said it will provide equity support of around Rs 8,700 crore to public sector banks to enable them to raise funds from the capital market without diluting the government's holding below the 51 per cent majority mark.

"The next tranche of capital infusion in public sector banks will be to raise the government's holding to a certain level, which is being worked out," department of financial services secretary R. Gopalan told journalists on the sidelines of the Orient Grameen Swarojgar Card launch by Oriental Bank of Commerce (OBC).

He said the objective was that at a time when the government is not in a position to fund the banks through budgetary resources they will be in position to go to the market and raise resources to beef up their Tier- I capital. Tier- I capital refers to the equity base and retained earnings of a bank.

The government has to gear up to meet the Basel III norms, which will require a higher level of Tier- I capital for banks than the existing levels. The government will look at those banks where the government's holding is at a minimum of 51 per cent.

In the first tranche the government has approved capital infusion of ` 6,211 crore in the five public sector banks announced in June this year.

Finance minister Pranab Mukherjee had announced during the presentation of the By Mail Today Bureau in New Delhi Union budget that the government planned to extend capital support to the tune of Rs 15,000 crore to public sector banks during the current financial year to ensure that these entities could attain a minimum eight per cent Tier- I capital by March 31, 2011. The remaining Rs 8,789 crore would be part of the second tranche.

There are six public sector banks, Bank of Baroda, Oriental Bank of Commerce, Andhra Bank, Dena Bank, IDBI Bank and Vijaya Bank, where the government holding is less than 55 per cent. The Centre's holding in Bank of Baroda stands at 53.8 per cent, Oriental Bank of Commerce at 51.1 per cent and Andhra Bank at 51.6 per cent. In IDBI Bank, Dena Bank and Vijaya Bank, the government holding is 52.7 per cent, 51.2 per cent and 53.9 per cent, respectively.

When asked if the government had taken any decision on the State Bank of India's (SBI) Rs 20,000- crore rights issue proposal, Gopalan said, " We are still examining it. We have not finalised the assessment." The government currently holds a 59.4 per cent stake in SBI. In 2008, SBI had raised Rs 16,736 crore from a rights issue to meet its funding requirements.

The bank in its latest debt issue raised $ 1 billion through sale of five- year bonds overseas.

On the operations of microfinance institutions ( MFIs) in the country, Gopalan said, " It is not possible for anyone to control interest rates. It is just not feasible.

As far as we are concerned the Microfinance Institutions Regulation Bill is in the offing, which is under consultation with a number of stakeholders. In that Bill we will never have a provision of control of interest rate, as it is not feasible" he added.

However, Gopalan did not confirm whether the Bill would be tabled in the forthcoming coming winter session of Parliament.

He said, " The timing depends on a number of legislative agenda."

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