Cabinet nod to market fund raising by PSBs, cut govt stake to 52%

NEW DELHI: The Union Cabinet on Wednesday allowed state-run banks to raise equity capital from the market subject to the condition that government stake should not fall below 52%, opening the way for public offers by many state run banks, including the biggest State Bank of India. The proposal is part of the government plan to cut banks’ dependence on the budget for capital.

The government estimates this will allow banks to raise Rs 1.6 lakh crore from the market, bulk of the equity capital they will need to meet the BASEL-III rules by March 2019.

"The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its approval for allowing Public Sector Banks ( PSBs) to raise capital to meet their additional capital requirements under BASEL-III by diluting government holding up to 52 % in a phased manner," the government said in a statement.

It wants to raise this capital from the retail investors.The government estimates banks will need Rs 4.6 lakh crore — Rs 2.4 lakh crore common equity, Rs 1.56 lakh crore additional Tier-I and Rs 64,500 crore Tier-II – by March 2019.By this calculation, the government sees the budgetary support over 2015-19 at Rs 78,895 crore only, sufficient to maintain its holding at 52%.