The government has decided to infuse R6,990 crore in nine public sector banks (PSBs) out of the current year’s budget...
The government has decided to infuse R6,990 crore in nine public sector banks (PSBs) out of the current year’s budget to strengthen their capital base. The capital infusion has been done on the basis of their efficiency in performance, it said.
This follows one of the general principles adopted during the January 1 and January 2 retreat (Gyan Sangam) of the chairpersons and managing
directors of PSBs and financial institutions — attended also by PM Narendra Modi — which stated that “efficient banks should be encouraged”.
“Banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position,” an official statement said on Saturday.
The country’s top lender State Bank of India got the maximum of R2,970 crore, followed by Bank of Baroda (R1,260 crore), Punjab National Bank (R870 crore), Canara Bank (R570 crore) and Syndicate Bank (R460 crore).
To infuse capital on efficiency parameters, weighted average of return on assets (ROA) for all PSBs for last three years was put together and all PSBs, which were above the average, were considered for capital infusion.
The second parameter that was considered was return on equity (ROE) for these banks during the last financial year, and similarly those performing better than average have been rewarded. So far, the Union government was infusing capital to those banks hit by equity erosion.
The other four banks chosen for capital infusion include Allahabad Bank (R320 crore), Indian Bank (R280 crore), Dena Bank (R140 crore) and Andhra Bank (R120 crore).
In his Budget speech last July, finance minister Arun Jaitley had said that to be in line with Basel-III norms there was a need to infuse R2.4 lakh crore as equity by 2018 in PSBs. To meet this huge capital requirement, he said, it was important to raise additional resources.
While preserving the public ownership, with government holding at least 51%, the capital of these banks will be raised by increasing the public shareholding in a phased manner via sale of shares through retail to Indian citizens, he had said. The government is currently planning to effect phased dilution of its stake in PSBs to 51%.
However, Jaitley did not announce any amount in his July 2014 (regular) Budget (2014-15) speech towards capital infusion. In the interim Budget in February, the UPA government had proposed to infuse R11,200 crore in PSBs.
FE had in April last year reported that the government is likely to allocate around R7,000 crore in the regular Budget 2014-15 towards capital infusion in PSBs. The previous UPA regime, citing fiscal constraints in infusing more capital, had asked PSBs to make efforts to raise their own capital. The government then had asked PSBs to ensure that a significant portion of their retained earnings is ploughed back as capital to further their business. It had also cautioned banks against using the entire portion of their profits for dividends and wage increments to employees.
Options being considered other than budgetary support to capitalise PSBs include channelising pension and insurance funds to the banking sector, banks issuing shares to employees to mobilise capital and rights issue for minority shareholders so that they get the option to retain their shareholding by subscribing to the tier-I bond issues. Also being considered is the option of hiving off non-core business and monetising realty assets.
The government infused capital of R12,000 crore in 2011-12, R12,517 crore in 2012-13 and R14,000 crore in 2013-14. While the PSBs ploughed back as capital from retained earnings R35,000 crore in 2011-12 and R37,936 in 2012-13, the UPA government had asked PSBs to plough back a higher amount as capital.
Owing to higher provisioning on account of rising non-performing assets (NPA), banks are finding it tough to plough back more of its retained earnings as capital than what they did in the previous years, as per PSB officials.