Even as the government said on Thursday that it will finalise the plan for a Rs 15,000-crore additional capital infusion in public sector banks “in the next few weeks”, in line with the budgetary annoucement, the country’s largest lender SBI said that it may consider the option of a rights issue to raise funds to strengthen its capital base. According to the government, the three banks that need additional capital the most are Indian Overseas Bank (IOB), Central Bank of India and Bank of Maharashtra.
Following a meeting that the PSBs had with finance minister P Chidambaram, SBI chairman Pratip Chaudhuri told reporters that after the government comes out with the capital allocation for PSBs, his bank would look into the need to raise capital through a rights issue.
The size of the rights issue is likely to be contingent on the capital infusion. FE had reported in August that the government may infuse an additional R4,000 crore in SBI by March-end 2013. In the last fiscal, the government had infused R7,900 crore in SBI.
Earlier, Chidambaram told reporters, “Most banks would require additional capital. We have Budgetary provision for infusing additional capital and decision would be taken in the next few weeks about infusing additional capital into banks.” However, he said that the government cannot infuse more than the Budgetary provision of R15,000 crore, adding “We will have to allocate R15,000 crore, which is being done by the (financial services) department.”
The minister further said, “All but one bank have Tier I capital of above 8%, well above Basel norms. But if credit expansion has to take place, additional capital has to be infused.”
M Narendra, chairman and managing director, IOB, said: “We have asked the government for R1,500 crore.” The government had infused capital worth R20,157 crore in PSBs in 2010-11 in a bid to help them maintain tier I capital at 8% as well as to raise the government holding in certain banks to 58%.
In 2011-12, the government infused R12,000 crore in PSBs to improve their capital adequacy ratio.
The RBI had come out with its Basel III norms this year to strengthen