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In-depth: Budget 2014 wants state-run banks to go public to raise capital

The 2014/15 budget has laid out a clear road map to raise resources for public sector banks that control more than two-thirds of the Indian banking system.

twitter-logo Anand Adhikari   New Delhi     Last Updated: July 10, 2014  | 20:06 IST
Budget wants state-run banks to go public to raise capital
Budget wants state-run banks to go public to raise capital

The 2014/15 budget has laid out a clear road map to raise resources for public sector banks that control more than two-thirds of the Indian banking system.

The road map, according to Finance Minister Arun Jaitley, is to expand the equity capital by mobilising a large part of the capital requirement through public offerings to retail investors. The fresh capital would be raised from retail investors, which indicates that there will be no offer to institutional investors both domestic as well as foreign.FULL COVERAGE:Union Budget

While proposing to provide greater autonomy to public sector banks, Jaitley said in his budget speech that the majority government ownership in state-run lenders will be preserved. This effectively means the government will reduce its equity holding over and above the minimum threshold of 55 per cent over the next few years.

In the past, the higher shareholding (some banks even have government stake of 70 to 80 per cent) had put fiscal burden on the government. This is because the government needs to recapitalise the banks to maintain its stake at higher levels. Jaitley has also junked the RBI-appointed P.J. Nayak committee, which suggested lowering the government's stake in public sector banks to below 51 per cent to meet their capital requirement under BASEL-III norms. BUDGET SPEECH:Full text | Video

"The PSU character of the banks will not change and there will be greater participation from retail investors," believes S. Ravi, independent director at IDBI Bank Ltd.

Jaitley said PSU banks require Rs 2.40 lakh crore capital by 2018 to meet higher capital requirement under BASEL-III capital norms. In every budget, the government used to allocate Rs 12,000 crore to Rs 15,000 crore for recapitalising the banks. Now with the government open to reducing its stake to the 55 per cent threshold, the burden on the government will reduce in terms of budgetary allocation.

 


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