Government takes Rs 3000 crore dent on Public Sector Bank recapitalisation

NEW DELHI: The government has taken a Rs 3,000 -crore dent from the recent bank recapitalisation, as the sell-off in shares has pulled down valuations. The loss, though, is notional – because it is based on current share prices and as the returns will not be realised until the shares are sold – and the government doesn’t seem to be too concerned about it either. Last month, the government approved a Rs 25,000 crore capitalisation plan for state-run banks, including Rs 20,000 crore for the top 13 banks.

Under the guidelines of stock market regulator Securities and Exchange Board of India, equity shares during such capital funding must be allotted at a price not less than the average of the weekly closing high and low in the previous six months or two weeks, whichever is higher. Under this formula, the prices at which the shares are allocated to the government are well above the current market levels. The benchmark Sensex shed about 17% from its year high on March 4.

In the case of State Bank of India, the price for investment has been determined at Rs 274.37 a share. On Friday, the stock closed at Rs 230.15 on the Bombay Stock Exchange, which means a Rs 870 crore loss on paper at current market price. A finance ministry official, dismissing the losses as notional, said the government does not factor in market conditions while working out its capital infusion programme. “Capital infusion is done to strengthen the banks and help meet regulatory requirements. The idea is not to make gains on these investments,” he said, adding that once the banks get strengthened, their share price will automatically improve. That will boost the government’s return as well. Bank of India, where the government is infusing the second highest amount after SBI, the issue price has been determined at Rs 193.30. On Friday, the stock closed at Rs 132.05. For Bank of Baroda, the issue price has been determined at Rs 192.74, while the bank’s scrip closed at Rs 181.10 on Friday. A banking expert who did not want to be named said the government could have waited for some time to get a better valuation for its investment, as capital was not a pressing concern for banks.