FM to review PSU banks capital needs on Nov 18

New Delhi, Nov 14 | Updated: Nov 15 2005, 06:40am hrs
Finance minister P Chidambaram will discuss various options including dilution of government equity, hike in FII limits and issuance of preference capital in his meeting with heads of state-owned banks on November 18.

According to finance ministry sources, there was a sense of urgency to take a call on these issues since banks have to meet stringent capital adequacy norms in the Basel II regime, beginning 2007. In his meeting with the public sector banks, the minister would review their current capital adequacy and also decide on the future course.

At present FII limit in PSU banks is capped at 20%. A hike in the limit together with a flexibility to dilute the governments stake in banks would help them raise further capital. Weaker PSU banks like Dena Bank, Punjab and Sind Bank and United Bank may be pushed into a corner if they fail to stick to their growth projections for the current fiscal.

In the bankers conference in Kolkata last week, Mr Chidambaram had indicated that banks would require about Rs 60,000 crore in the next five years to sustain the growth rate in the banking sector. The PSU banking sector has investment fluctuation reserves of Rs 22,000 crore which can be reflected as tier-II capital.

Banking On Capital
FinMin feels issues like dilution of govt equity, hike in FII limits and issuance of preference capital need immediate attention
Weaker PSBs like Dena Bank, Punjab and Sind Bank and United Bank may be pushed into a corner
Banks may, however, face a capital crunch in the next couple of years, in case credit growth continues at the current pace. We, therefore, want to take prior precautionary steps to avoid any disruption in the system though all banks are comfortably placed in terms of capital requirement as on date, the source said.