The Hindu Business Line : Multilateral institutions may be approached for banks’ recapitalisation

The Finance Ministry is in the process of preparing a paper that would go into the recapitalisation details and quantify the amount that may be required.

K.R. Srivats

New Delhi, Nov. 27 The Finance Ministry may approach multilateral institutions like the World Bank to part finance the planned recapitalisation of seven public sector banks to help them reach a capital adequacy ratio of 12 per cent.

Currently, the banks, in which fresh capital is proposed to be injected, have capital to risk asset ratio (CRAR) of 10-12 per cent.

Official sources said that the Finance Ministry was in the process of preparing a paper that would go into the recapitalisation details and quantify the amount that may be required.

The current thinking within the Ministry was that the capital infusion would have to happen by cash and not through bonds or other securities.

“The paper is likely to be ready by this weekend. We may even look at approaching multilateral institutions for their support,” a Finance Ministry official said.

The Finance Minister, Mr P. Chidambaram, had in mid-October said that the Government had decided to provide the banks access to finance in order to raise CRAR that are now between 10 and 12 per cent to reach 12 per cent by a suitable date in future.

He had highlighted that the CRARs of Indian banks were well above the Basel norm of 8 per cent and RBI stipulated norm of 9 per cent. Banks that had low CRAR at the end of March 2008 were UCO Bank (10.09), Bank of Maharashtra (10.26), Central Bank of India (10.42), Dena Bank (11.09), Vijaya Bank (11.22), Andhra Bank (11.61) and Indian Overseas Bank (11.96), RBI data showed.

PSU banks

Other PSU banks that had CRAR of below 12 per cent include Punjab & Sind Bank (11.57), State Bank of Hyderabad (11.97), State Bank of Indore (11.29), State Bank of Mysore (11.29), Syndicate Bank (11.22), IDBI Bank (11.95) and United Bank (11.88).

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