The Telegraph
Tuesday , February 18 , 2014
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Bank cash problem to persist

Villagers listen to the budget on a radio in Moradabad on Monday. (PTI)

Mumbai, Feb. 17: Finance minister P. Chidambaram’s proposal to provide Rs 11,200 crore for capital infusion in public sector banks in the next fiscal has failed to enthuse bankers.

“In 2014-15, I propose to provide Rs 11,200 crore for capital infusion in public sector banks. They have opened 5,207 branches so far, against the target of 8,023 branches, and are near the goal of installing an ATM at every branch,” he said while presenting the interim budget for 2014-15 in the Lok Sabha today.

The amount is lower than the Rs 14,000 crore that PSU banks received this fiscal.

Senior bankers and analysts averred that the actual cash requirement was at least twice the proposed amount on a conservative basis. This may compel PSU banks to raise money from the markets, which can be challenging.

The recent spurt in non-performing assets (NPAs), which require banks to set aside more money against bad loans, has put pressure on their capital. This has increased the cash requirements of nationalised banks.

According to Vaibhav Agrawal, vice-president (research) at Angel Broking, the proposed amount will not be enough as the capital requirement of PSU banks will be at least Rs 25,000 crore on a conservative estimate. This will go up to a minimum of Rs 35,000 crore over 2017-18, following the implementation of Basel III norms.

“The requirement will keep going up because of the high amount of NPAs that many of these banks have,” he said.

Observers point out that banks may find it difficult to tap the market to raise funds because the investor appetite for PSU banks has taken a hit owing to problems such as high NPAs. Private banks command a better valuation than their nationalised peers.

“Many of these banks are now not lending aggressively. The problem is that when the economy improves, they (PSU banks) will be strapped for capital. Since they (PSU bank stocks) are trading cheap, raising money will be difficult,’’ Agrawal said.