New Delhi, Oct. 23: The finance ministry will infuse Rs 2,000 crore into the State Bank of India, Rs 1,800 crore each into Central Bank and IDBI Bank and Rs 1,000 crore into the Bank of India as part of a planned Rs 14,000-crore equity prop for state-run banks.
However, the support comes at a price. Almost all PSU banks have been asked to reduce interest rates, and they have agreed to cut rates ranging from a quarter per cent to 1 per cent.
Top finance ministry officials said the banks could also raise capital from the market to shore up their capital adequacy norms even as they expand lending. In SBI’s case, as the government holds about 62 per cent, the bank could opt to raise capital proportionately to keep equity ratios intact, said banking secretary Rajiv Takru.
The SBI will be able to raise about Rs 1,500-1,600 crore, while all the other banks identified for capital infusion can raise about Rs 10,000 crore from the market. The finance ministry said in a note today that the money would be pumped in “through preferential allotment in the government of India’s favour”.
The capital infusion will lower banks’ need to borrow funds to on-lend and this is expected to help them reduce interest rates. Bankers have been saying that the hardening of rates, including high inter-bank and policy rates, have given them little leeway to reduce lending rates.
Among some 20 banks who will get the funds infusion are three Calcutta-based banks — UBI, which will get Rs 700 crore, Allahabad Bank, which will receive Rs 400 crore and Uco, which will get Rs 200 crore.
SBI sources said the bank would be holding a board meeting in end-October to decide on the route to raise capital as well as the timing. The two options being weighed are a follow-on public offer and a qualified institutional placement.
The management favours a follow-on offer as the market perception of it being the safest bank in the country will enable it to raise more than government estimates.