Seven state-run banks told to raise capital from market

Public sector banks may turn to equity markets and other alternative sources of capital with the government allowing seven major banks to raise capital from market as in lieu of budgetary support that the government had promised.

In the union budget for the fiscal year 2015-16, finance minister Arun Jaitley has proposed to inject Rs7,940 crore ($1.3 billion) in state-run banks, against the Rs11,200 crore initially planned for the current fiscal year.

The money is needed to capitalise banks to comply with global Basel III banking rules, a finance ministry statement said on Wednesday.

Addressing chief executives of public sector banks and financial institutions today, finance minister Arun Jaitley said the adoption of differentiated strategies and capital augmentation plans through innovative financial instruments would allow the banks to meet their capital requirements.

The government had infused Rs14,000 crore in 14 PSBs during 2013-14 and has decided to infuse Rs6,990 crore in nine PSBs during 2014-15.

He said approvals have also been given in 2014-15 to seven PSBs to raise capital from the market. 

The government's decision to reduce the shareholding of PSBs to 52 per cent would also give these banks headroom to raise capital from the market. All these efforts are being undertaken to allow the PSBs to meet the Basel-III capital requirements, he said.

At the same time, he said, this would also facilitate appropriate credit expansion to meet the needs of the productive sectors of the economy so that the momentum of economic growth may be sustained.

The finance minister said the PSBs have received 88 new project proposals during April-January 2014-15 involving total investment of Rs1,41,000 crore.

While the gap in the government's cash injection has to be bridged, Hasmukh Adhia, financial services secretary, said he did not see an immediate rush to market.