The government today said public sector banks should raise capital on their own in future even as it proposed to infuse Rs 11,200 crore as equity in them during the next financial year.
"I am signalling that it is good corporate and business practice to be able to raise your own capital... I would urge banks to raise their own capital," Finance Minister P Chidambaram said in his post-Budget interaction with media.
"There are various kinds of capital Tier 1, Tier II etc. They should raise capital. The government will provide whatever it can afford to provide," he added.
The government proposed to provide Rs 11,200 crore for capital infusion in public sector banks in 2014-15.
Chidambaram said: "What we have provided is what we have budgeted now. This is an Interim Budget. In regular budget you will get a full picture what government can provide as additional capital."
One of the claims on the net profits of banks is to put aside a significant part of that for additional capital, he further said.
"Banking, unlike other industries, requires capital every year. Banking, if you have to grow their business even, to take one step forward, you need additional capital because there are provisioning requirement, capital requirement," Chidambaram said.
"Therefore, banking is a very special business where additional capital is required every year and therefore boards of banks, employees of banks must recognise that a significant part of their earning must be put aside as cash," he said.
The government infused Rs 14,000 crore in public sector banks during the current financial year ending March 31. Of this, the State Bank of India got Rs 2,000 crore while Indian Overseas Bank received Rs 1,200 crore.
In view of the Basel III, or global prudential banking norms, all banks have been planning to shore up their Tier 1 capital.
State-owned banks, hamstrung with government ownership, can't access capital markets that freely and regularly; yet, they too need capital to grow, said Robin Roy, associate director (financial services) PwC.
Chidambaram also said that banks are under strain due to rising non-performing assets (NPAs), or bad loans.
"Bankers have assured me that as the economy turns they will be able to contain the NPAs, recover more loans, and build healthier balance sheets," he said.
NPAs of public sector banks rose 28.5 per cent to Rs 2.36 lakh crore in September last year, from Rs