Public sector banks to get Rs240,000 crore by 2018

Finance Minister Arun Jaitley in his maiden budget on Thursday said the government will infuse Rs2.40 lakh crore in to public sector banks (PSBs) by 2018 to ramp up its capital.

This he expects will provide greater autonomy to public sector banks to meet Basel III norms.

"To be in line with the Basel III norms, there is requirement to infuse Rs240,000 crore as equity by 2018 in our banks (public sector banks). To meet this huge capital requirement, we need to raise additional resources to fill this obligation," he said in the Budget speech in Parliament.

A large part of this fund would be raised through public offers made to retail customers, he said.

On 24 October 2013, the government had approved capital infusion of Rs14,000 crore in the public sector banks through preferential allotment of equity in its favour (See: Public sector banks to get Rs14,000-cr government funding in 2013-14)

"While preserving the public ownership, the capital of these banks would be raised by increasing the shareholding of capital in the phased manner through sale of shares largely through retail common citizen in the country," Jaitley said in his speech.

"Thus, while the government would continue to hold majority shareholding, the citizen of India will also get direct shareholding in the bank which they currently hold indirectly," he added.

The Resrve Bank of India in its bi-annual Financial Stability Report on 27 June 2014 said the risks to the stability of Indian banks, especially state-owned banks, have increased over the six months ended 30 March 2014 with deterioration in asset quality and decline in lending activity amidst a slowdown of economic expansion (Indian banks face risk of worsening asset quality: RBI report).

Jaitley said the government would also look into the issue of providing greater autonomy to the boards of banks.

"We will also examine the proposal to give greater autonomy to banks while making them accountable," he said.

The interim budget had announced infusion of Rs11,200 crore in public sector banks to enhance their capital in the current financial year.

Presently, there are 27 public sector banks including SBI and its subsidiaries.