At a time when government finances are becoming precarious, the finance ministry has asked public sector banks (PSBs) to explore different options for capital infusion.
“Instead of expecting the government to provide
funds for capital infusion, we have suggested that public sector banks should look at alternative plans to raise capital on their own,” said a senior official. These options could include preference shares or rights issues, the official said, adding that all banks have been asked to submit blueprints for capitalisation by next month.
“We want the exercise to be completed by August-end,” he said. The government’s bank capitalisation programme is aimed to strengthen PSBs to help withstand any kind of a financial crisis. The Budget has allocated Rs 14,000 crore for capital infusion in state owned lenders in 2013-14. While the finance ministry will be using these funds for capital infusion in some banks, the thinking is that it should be a limited
activity as the government does not want to increase its holding in any of the public sector banks. Four banks including IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and Dena Bank are expected to submit plans to the government for capital infusion soon to help them comply with the Tier-I capital adequacy ratio (CRAR) of 8 per cent.
Finance minister P Chidambaram had earlier said that capital infusion in PSBs would also be done through retained earnings of banks and qualified investor placement apart from the Budget allocation.