Jul 11 2014 : The Economic Times (Bangalore)
IN FOCUS - GOVT STAKE IN PSU BANKS MAY FALL BELOW 51%
MC GOVARDHANA RANGAN
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MUMBAI
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Finance Minister Arun Jaitley threw a lifeline to state-run banks when he gave them permission to sell shares in the domestic market to raise capital and to float long-term bonds without statutory pre-emption such as mandatory bond holdings and setting aside cash.State-run banks, which are hobbled by asset-liability mismanagement and rising bad loans, can improve their standing by raising equity through share sale to domestic investors. “While preserving public ownership, capital of these banks will be raised by increasing the shareholding of the people in a phased manner through sale of shares, largely through retail, to common citizens,“ said Jaitley.
Although the minister has not said that he is open to reducing the govern ment's stake in public sector banks to below 51%, the minimum requirement, some interpret his statement as an indication that it could be the case given the government's meagre resources. The Budget has factored in `11,200 crore for capitalising banks this fiscal, which is far less than required. is far less than required.
“The reality is there is no getting away from the fact that we need capital,“ says Jaideep Khanna, country head at Barclays. “It is an indirect way of saying that he may be forced to go below 51%.“
Indian banks may need `2.8 lakh crore in capital by 2018 when the Basel III norms come into force.
State-run banks, which have been funding long-term infrastructure requirements with short-term deposits, will get to sell bonds of 10-20 year tenure. Unlike other funding, banks need not hold 23% of the funds raised from a bond sale in government securities and 3% in cash reserve ratio.
“Allowing banks to issue long-term bonds without recourse to statutory pre-emption (CRR/SLR) for financing infrastructure is a positive step,“ said Arundhati Bhattacharya, chairman, State Bank of India. “Allowing infrastructure loans to be given for longer periods matching the life of the asset (25X4 structure) is a big positive.“
Although the minister has not said that he is open to reducing the govern ment's stake in public sector banks to below 51%, the minimum requirement, some interpret his statement as an indication that it could be the case given the government's meagre resources. The Budget has factored in `11,200 crore for capitalising banks this fiscal, which is far less than required. is far less than required.
“The reality is there is no getting away from the fact that we need capital,“ says Jaideep Khanna, country head at Barclays. “It is an indirect way of saying that he may be forced to go below 51%.“
Indian banks may need `2.8 lakh crore in capital by 2018 when the Basel III norms come into force.
State-run banks, which have been funding long-term infrastructure requirements with short-term deposits, will get to sell bonds of 10-20 year tenure. Unlike other funding, banks need not hold 23% of the funds raised from a bond sale in government securities and 3% in cash reserve ratio.
“Allowing banks to issue long-term bonds without recourse to statutory pre-emption (CRR/SLR) for financing infrastructure is a positive step,“ said Arundhati Bhattacharya, chairman, State Bank of India. “Allowing infrastructure loans to be given for longer periods matching the life of the asset (25X4 structure) is a big positive.“
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