Finance ministry defers plan to infuse Rs 14,000 crore in state-run banks

NEW DELHI: The finance ministry has deferred its plan to infuse Rs 14,000 crore in state-run banks till the next quarter as it wants to assess their needs after the second quarter results before pumping cash to shore up their capital adequacy ratio (CAR), a senior finance ministry official told ET.

“There will be more clarity on the requirement at that time. Also, we will able to work out how much reserves banks can plough back to shore up their CAR,” the above quoted finance ministry official said, requesting anonymity.

The finance ministry has prepared a matrix for assessing the capital requirements of banks which include indices such as credit growth, non-performing assets, recoveries and profitability. “In this current economic situation, we do not have much resource as the government’s disinvestment programme is floundering. So, it will be a onetime infusion and at the best opportune time,” said the finance ministry official.

In the budgetary announcements, the government had committed to capitalise banks from divestment proceeds but the current market situation and the rupee volatility have upset all plans. The government has so far raised only Rs 1,323 crore, against the budgeted Rs 40,000 crore form disinvestment.

The finance ministry feels there’s no urgent need of capital infusion in banks and the government can take a call after the halfyearly results. Barring four, all other public sector banks are quite comfortably placed at 8% CAR,which is much above the required 6%, as prescribed by the Reserve Bank under the Basel III norms. The CAR requirement will increase by 50 basis points to 6.50% from March 2014.

P Chidambaram hads aid that all banks with capital adequacyratio of less than 8% will be given preference for capitalisation. Dena Bank has the lowest CAR at 7.26% followed by Bank of Maharashtra (7.57%), IDBI (7.68%) and Indian Overseas Bank(7.80%).

Chidambaram had also said that banks will plough back retail earnings and also find other ways to raise capital. “We have asked banks to explore other options. In cases where government holding is more than 75%, both banks and the government will evaluate if options other than direct cash infusion can be explored,” said the finance ministry official.