The Hindu Business Line : Basel II norms: Banks told to look for new forms of capital

THE Finance Minister, Mr P. Chidambaram, has said public sector banks that have reached the threshold limit of 51 per cent government holding would have to identify some new forms of capital to meet the Basel II capital adequacy norms.

Referring to the ownership of public sector banks, the Finance Minister said the Government would retain equity in public sector banks at 51 per cent. However, the implementation of Basel II norms would exert pressure on capital requirements and the banking sector may see a net depletion of 200 basis points in capital adequacy. This may entail raising of fresh capital and in case of some public sector banks, the room for raising fresh capital would be constrained by policy. Therefore, banks should look for new forms of capital.

The Finance Minister was addressing the annual general meeting of the Indian Banks Association here on Saturday.

In his Budget for 2005-06, Mr Chidambaram had suggested amendments to the Banking Regulations Act allowing banks to issue long-term preference shares, which can be accepted as Tier-I capital .

Referring to the consolidation in the banking sector, the Finance Minister said the initiative had to come from banks themselves, "driven by the boards and supported by the officers and employees, and based upon operational synergy and strategic coherence."

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