The government is willing to dip into the fisc to provide financial assistance to some of the public sector banks (PSBs) to shore up their capital after the implementation of the stringent Basel-II norms. The international norms are intended to ensure better safety margins for banks globally. Official sources however said the capital adequacy ratio (CAR) of most public sector banks were well above the required level of 9%, but the implementation of Basel-II norms could bring down the levels by about 3%. A higher CAR means better ability of a bank to stay solvent.
?Most banks are prepared to meet the Basel-II norms. However, financial packages would be given to them if need be, though there has been no formal proposal from them as yet,? a banking industry source said. UCO Bank and Central Bank of India have a CAR of just over 11.5%, while others have a higher CAR of 12.5%.
While Central Bank has come out with its initial public offer in 2007 to strengthen its CAR, the government has also allowed banks to use hybrid instruments to shore up their capital bases.
The Basel-II norms would figure in the meeting of finance minister P Chidambaram with PSU bank CEOs on Friday.
The meeting will review the performances of the public sector banks, including that of It high cost deposits. The finance ministry is not satisfied with the increased high cost deposits. ?The government is keeping a close watch on this and would want the banks to focus on the current account-savings account portfolio, said a source connected with the developments.
He also said the banks would not be allowed to meet credit targets through high cost deposits. The performances yardstick would be also be used to decide if the CEOs are entitled to get their incentives.