PSBs may leverage real estate holdings to meet capital needs

Written by fe Bureau | New Delhi | Updated: May 14 2014, 06:45am hrs
PSBEach PSB will set up a holding company to raise capital from the market directly. Reuters
To meet their huge capital needs, estimated to be between Rs 5 lakh crore and Rs 8 lakh crore in the next five years for the Basel-III requirements, public sector banks (PSB) are looking at various options such as monetising their surplus real estate assets.

An idea that came up during the finance ministry's meeting with the PSBs on Tuesday was that each bank will assess its disposable real estate assets and create a special purpose vehicle (SPV) for holding them.

The SPV then will raise capital by issuing bonds or by listing on stock exchanges, on the strength of the assets and the rental and lease incomes.

Besides, each PSB will set up a holding company to raise capital from the market directly. These capital raising methods are being considered even while adhering to the policy that government holding in PSBs would not be diluted below 51%, financial services secretary GS Sandhu told reporters. Finance minister P Chidambaram reviewed the annual performance of PSBs on Tuesday.

The government was earlier considering a single financial holding company for all public sector banks for capital purpose. This proposal has now been tweaked to allow each PSB set up a holding company, Sandhu said. Further discussions will be on with the RBI and Sebi on all these proposals and a final decision on this as well as on the total Budgetary support to PSBs this fiscal, however, will be taken by the new government, he added.

Sandhu said the government is likely to infuse additional capital between Rs 6,000-8,000 crore in PSBs this fiscal, over and above Rs 11,200 crore provided in the interim Budget. FE had earlier reported that the regular Budget is likely to allocate around Rs 7,000 crore to PSBs. The government wanted PSBs to ensure that a significant portion of their retained earnings is ploughed back as capital to further their business. Chidambaram recently said PSBs will need capital to the tune of Rs 45,528 crore this fiscal.

Meanwhile, the RBI approved a proposal of the PSBs to issue shares to their employees to mobilise capital, Sandhu said. The other proposal is to allow a rights issue for minority shareholders so that they get the option to retain their shareholding by subscribing to the tier-I bond issues.

On another proposal of channelising pension and insurance funds to the banking sector by allowing them to invest in tier-I perpetual bonds issued by PSBs, Sandhu said talks are still on with IRDA on the matter.

Though bad loans in PSBs banks are still a cause for concern for stakeholders, including the government, vigorous recovery efforts by the PSBs ensured that the gross non-performing assets in January-March quarter in 2013-14 improved to 4.44% from 5.07% in the previous quarter, Sandhu said. Warning wilful defaulters, he said, PSBs may go in for change in management of the defaulting entity if it fails to repay loans.

Sandhu said most of the stressed assets are in infrastructure, textiles, steel, mining and aviation sectors that account for a quarter the advances of all the banks. On the issue infrastructure finance, he said the RBI is keen on long-term finance for the core sector and the matter would be discussed on May 15 during the RBI board meeting.