Move will help banks raise more money from the market, says Rajiv Takru

The Centre on Wednesday said it has allocated Rs 2,000 crore to State Bank of India and Rs 1,800 crore to IDBI Bank as part of its plan to infuse Rs 14,000 crore in fresh capital to 20 public sector banks.

“The capital infusion is done with the twin objective of adequately meeting the credit requirement of the productive sectors of the economy as well as to maintain regulatory capital adequacy ratios,” a Finance Ministry statement said.

This infusion will help banks raise more money from the market. “Banks can raise Rs 10,000 crore from the market against the Government’s Rs 14,000-crore infusion,” Rajiv Takru, Financial Services Secretary, told newspersons here. The Centre’s capital infusion plan covers almost all PSBs, with SBI getting the largest share.

The capital infusion will ensure that banks have 8 per cent Tier-1 capital (core capital consisting of equity capital and disclosed reserves) by the end of the current fiscal. Banks will allot preferential shares to the Centre in lieu of the capital infusion. Post-infusion, banks will be allowed to raise Tier-1 capital from the markets in proportion to the amount infused by the Centre. This will help maintain the Centre’s level of shareholding. Banks can take the Qualified Institutional Placement (QIP) or rights issue routes to do so.

Additional capital

Since capital infusion will help expand the capital base, banks can use the expanded base to allocate fresh shares to qualified institutions and existing shareholders under the rights issue mechanism.

SBI has already said it would take a decision on raising funds through the QIP route within a month. Though it did not announce the amount to be raised, the capital infusion can help it raise Rs 1,500-1,700 crore.

The Finance Ministry also made it clear that any additional capital infusion would be done on the basis of banks’ performance under the concessional rate scheme.

It had announced last month that additional amount of capital will be provided to banks to enable them to lend to borrowers in sectors such as two-wheelers and consumer durables at lower rates in order to stimulate demand.

With the additional capital, the Ministry also expects higher profits which, in turn, will result in higher dividend payouts to the Government. Public sector banks together recorded around Rs 35,000 crore as profit last year.

shishir.s@thehindu.co.in

(This article was published on October 23, 2013)
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