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The Government has announced infusing Rs 6,900 crore in nine public sector banks. The key point is that this additional capital has been given on the basis of new criteria that comprise of efficiency parameters.
State Bank of India has got the maximum amount followed by Bank of Baroda and Punjab National Bank.
A Finance Ministry statement said banks that are more efficient would be rewarded with extra capital for their equity so that they can further strengthen their position. The methodology for calculating the amount to be infused involved two parameters. First, the weighted average of return on assets (ROA) for all PSBs for the last three years put together was arrived at and those above the average have been considered. The second parameter that has been used is return on equity (ROE) for these banks for the last financial year. Those who have performed better than average have been rewarded.
According to the statement, the Government is conscious of the fact that a number of reforms are required in public sector banks (PSBs). With a view to crystallising ideas for reforms a two-day Retreat of CMDs of Banks and Financial Institutions called `Gyan Sangam’ was held at Pune on February 1-2. The retreat generated an agenda under which banks were supposed to undertake certain activities individually or jointly and there were certain things which were supposed to be done by the Government.
One of the general principles adopted during the retreat was that efficient banks should be encouraged. For the last few years, Government has been infusing capital in banks where equity erosion has taken place. Therefore, this year, the Government decided to frame new criteria for infusion.
The amount is less than the total provision of Rs 11,200 crore made in the Budget. The additional capital will help the banks strengthen their capital adequacy. Finance Minister Arun Jaitley, while presenting Budget on July 10 had said, “Financial stability is the foundation of a rapid recovery. Our banking system needs to be further strengthened. To be in line with Basel-III norms there is a requirement to infuse Rs 2,40,000 crore as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfil this obligation. While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country.”
Accordingly, the Government has already decided to bring its stake holding in public sector banks down to 52 per cent from the current norm of 58 per cent. Many banks, including State Bank of India, are planning to tap the market to raise capital.
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