PSU banks asked to submit fund-raising plans ahead of Rs22,915-cr capital infusion

The finance ministry has asked state-run banks to submit plans for raising funds from the market ahead of a proposed capital infusion of Rs22,915 crore by the government.

The ministry wants banks to detail plans for raising resources from the market, including public offers and sale of non-core assets.

The proposed infusion of Rs22,915 crore capital is part of a Rs70,000 crore capital infusion planned by the government.

PSU banks need to overall raise Rs1,800,000 crore in fresh capital to comply with Basel-III norms by 31 March 2019. The capital infusion by the government will help these banks tap capital market with confidence.

At a meeting of chief financial officers of public sector banks (PSBs) to discuss capital allocation plans, senior finance ministry officials have reportedly advised banks to submit plans for raising funds from the market.

"With the infusion, the financial strength of the banks will get a boost. This can be then leveraged by the banks to raise funds from the markets which is looking up," sources said.

Under Indradhanush roadmap announced by the ministry last year, the government will infuse Rs70,000 crore in PSBs over a four-year period while the banks will have to raise another Rs1,10,000 crore from the market to meet their capital requirements in line with global risk norms Basel-III.

"Improved valuations coupled with value unlocking from non-core assets as well as improvements in capital productivity, will enable PSBs to raise the remaining Rs 1,10,000 crore from the market," as per the Indradhanush plan.

The government has committed to make extra budgetary provisions in FY'18 and FY'19, to ensure that PSBs remain adequately capitalised to support economic growth, says the government document.

Out of the Rs22,915-crore the government proposes to pump into the banks, 75 per cent will be released soon, to be disbursed immediately, while the balance will be linked to the banks' performance.

Of the Rs22,915 crore, State Bank of India (SBI) will get Rs7,575 crore, followed by Indian Overseas Bank (Rs3,101 crore), Punjab National Bank (Rs2,816 crore), Bank of India (Rs1,784 crore), Central Bank of India (Rs1,729 crore), Syndicate Bank (Rs1,034 crore), UCO Bank (Rs1,033 crore), Canara Bank (Rs997 crore), United Bank of India (Rs810 crore), Union Bank of India (Rs721 crore), Corporation Bank (Rs677 crore), Dena Bank (Rs594 crore) and Allahabad Bank (Rs44 crore).

While the capital infusion will boost government's shareholdings in the banks, which have been under-capitalised tapping the market for fresh capital will widen the banks' investor base.

PSU banks are relatively capital-starved compared with their private peers, mainly because of curbs on equity sales to raise money.

The average capital adequacy ratio (CAR), ie, the ratio of a bank's capital to its risks, for public sector banks stood at 11.6 per cent as of 31 March 2016, lower than the 13.2 per cent for banking system as a whole.