Banks revalue gold chests as govt looks to lower capital infusion

Written by Sunny Verma | New Delhi | Updated: Jan 12 2012, 08:56am hrs
In an attempt to whittle down the funds needed to recapitalise public sector banks, the government has asked them to revalue the gold they hold.

Banks including the countrys largest lender State Bank of India (SBI) have been asked to reassess the value of the metal they hold as collateral for loans, and otherwise. The exercise will boost the Tier-I assets of banks, reducing the drag on the government which plans to cough up R11,000 crore before March 31 for them.

An SBI executive, who did not wish to be named, confirmed the development. Gold prices have roughly trebled in two years as investors bought the safe-haven asset amid widespread uncertainty. Gold prices rose by R80 to R27,990 per 10g on Wednesday.

The SBI executive said: Even though we will get government funds, we are trying to strengthen our base by conserving capital and correctly inputting data. For example, we have a lot of fixed portfolio of gold and its value must be incorporated correctly in the balance sheet. This will get reflected in the tier-I capital and boost our capital. He, however, declined to put a figure on how much the exercise would add to SBIs capital.

The finance ministry has asked public sector banks to undertake this revaluation as it seeks to bolster their capital base, a government official said. Meanwhile, a committee headed by finance secretary RS Gujral is framing a strategy to meet capital requirement of PSBs for the next 10 years to meet Basel III capitalisation norms.

SBI chairman Pratip Chaudhuri has confirmed that his bank expects to get about R6,000 crore from the government through a preferential issue this fiscal. SBI expects to have the corrected data incorporated in its annual balance sheet for 2011-12. The bank has cash-in-hand, which included gold and foreign currency notes, of R7,476.55 crore as on March 31 as per its annual report for 2010-11. The tier-I number comes from the balance sheet, which includes home loans, education loans and gold loans, the executive said. While loans are assets of a financial institution, deposits form its liabilities.

SBIs capital adequacy ratio stood at 11.4% in the September quarter, of which core tier-I capital stood at 7.47%, much below the 8% level desired by the government. Tier-I capital is the core capital comprising equity, disclosed reserves and perpetual debt. The SBI share closed up 1.39% at R1725.75 on the Bombay Stock Exchange on Wednesday.

The government has pared its additional capital infusion plan by R3,000 crore to R11,000 crore for the fiscal. The ministry plans to infuse R17,000 crore- including the R6,000 crore already provided for in the 2011-12 Budget into public sector banks.

Other banks which will get government support include Bank of Baroda, Bank of Maharashtra, Union Bank of India, IDBI Bank and Syndicate Bank.