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Sunday , July 20 , 2014
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Bank recap prop on way

Jaitley in New Delhi on Saturday. (AFP)

New Delhi, July 19: Finance minister Arun Jaitley today said state-run banks would require recapitalisation worth Rs 2.4 lakh crore and this would be a top priority for the government.

Officials said the finance ministry would prepare a draft cabinet note on the dilution of the government’s stake in the State Bank of India (SBI) in August to enable it to raise capital for meeting Basel-III norms.

“We suggested a proposal to recapitalise public sector banks over the next four years. The government is treating this as a very high priority item,” Jaitley said at a Canara Bank event here.

Jaitley said banks would raise part of the capital needed through public issues without diluting their public sector identity, which means the government will own 51 per cent or more in these banks.

“While the government will have a majority stake, we will allow the public to invest directly in these banks,” he said, adding this will help the banks to expand and, thereby, increase the whole process of financial inclusion.

Earlier, financial services secretary G. S. Sandhu indicated that a cabinet note to bring out a public issue for SBI shares was likely “next month after the Parliament session is over”.

“We have not decided yet on the SBI stake dilution. We are preparing the road map at the moment (raising of capital by all public sector banks),” Sandhu said here today.

The department is assessing the capital requirement of all public sector banks and is likely to finalise the schedule in a month, he said.

The government has allocated Rs 11,200 crore for bank re-capitalisation in this year’s budget.

The government holds 58.60 per cent in SBI, the country’s largest bank. In January, the SBI had raised Rs 8,032 crore by selling 5.13 crore shares through a qualified institutional placement. The SBI had raised over Rs 16,000 crore through a rights issue in 2008. As part of its contribution, the government issued bonds to the bank instead of cash.

Officials also said the government had asked PSU banks to aggressively sell bad loans in the current financial year.