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