Govt’s stake dilution expected to aid banks’ Basel-III push

Bankers believe the government’s move to gradually reduce its stake to 52%.

Bankers believe the government’s move to gradually reduce its stake to 52% will make it easier for them to prepare a roadmap to meet Basel-III capital requirements by 2019. Some of them are hoping to hit the capital market next year — Canara Bank, Union Bank, Central Bank of India and Vijaya Bank have sought the government’s approval to raise capital via equity market.

Vijaya Bank, in which the government owns 74%, has already got an approval for a Rs 600-crore QIP. Chairman V Kannan told FE the issue is expected to hit the market by end of January 2015, which would bring down the government stake to 68%. “If we are able to raise Rs 600 crore, we would be well-capitalised,” he said.


SBI chairman Arundhati Bhattacharya was quoted by agencies as saying that banks could look at issuing shares with differential voting rights to raise funds to meet the Basel-III capital-adequacy norms. “The writing on the wall is very clear… they (PSBs) have to think of differential voting rights. It is time to lay out some kind of roadmap on how much the banks need to do and how much support they would get,” she said.

An executive at Central Bank of India said the lender has already raised close to Rs 581 crore from LIC through a preferential allotment of shares in August. He added the bank is expecting another Rs 625 crore from LIC through another preferential allotment, which has been approved by the board in December. More than 84% of Central Bank is owned by the government as in September 2014.

Bankers FE spoke to said this would not change the governance of the public sector banks as the government would still hold a majority and bankers would still be under the purview of the Central Vigilance Commission (CVC), which reviews staff accountability whenever an account turns bad. “It doesn’t change life for us as it is an exercise taken out of sheer requirement of capital and has nothing to do with administration,” a senior banker said.

At present, the government holding in PSBs is 56-84% with the highest being in Central Bank and the lowest in Bank of Baroda. According to finance minister Arun Jaitley, banks would need Rs 2.4 lakh crore capital by 2018 to meet Basel-III requirements.

SBI had raised close to Rs 8,000 crore in February 2014 through a qualified institutional placement, which did not see too much participation by FIIs and was saved by Life Insurance Corporation of India (LIC). However, the recent surge in equity markets has prompted several PSBs to raise capital. In September, Punjab National Bank said its board adopted a resolution to raise funds either through QIP or follow-on public offering (FPO) or rights issue.

As per Basel-III norms, the minimum Tier-I has to be 7% and has to be adhered to by March 2019. The government said on Wednesday that since the quantum of capital support needed by banks is huge, it cannot be funded by budgetary support alone. It added that the stake dilution would let banks raise Rs 1.68 lakh crore to meet their capital requirements. Most PSBs banks have their Tier-I capital adequacy ratio above the regulatory requirement of 7%.

This move would ease the government’s pressure of capitalising banks every year and is aimed at a long-term solution, analysts said. In the last four years, the government has pumped Rs 58,634 crore into PSBs and the provision for the current year stands at Rs 11,200 crore. “The budgetary support needed from the government between 2015 and 2019 would be Rs 78,895 crore, which will maintain the government holding at 52%,” the Cabinet press release said.

The stake dilution was mooted by Jaitley in the Union Budget in July this year. He had announced that although the government will retain majority shareholding, it will let PSBs raise money by selling shares through the retail route. The PJ Nayak Committee report had earlier recommended the creation of a Bank Investment Company for the government to transfer its holdings in PSBs and bring its stake below 50%.

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First published on: 12-12-2014 at 00:22 IST