BANKING
| Planning Commission to set road map for capital infusion in banks Tue, 15 Mar 2011 00:50:50 GMT |
| NEW DELHI: The Planning Commission will chalk out a long-term capital infusion plan for public sector banks, helping them meet the credit needs of an economy seen growing at over 9% in the medium term. The finance ministry had so far been providing need-based equity support to banks, often leading to delays as the government was not always in a position to provide the kind of funds banks required. "The Plannning Commission will prepare the framework for the capitalisation," a senior finance ministry official said. A combination of high growth and higher regulatory requirements under the Basel III framework will sharply push up capital needs of Indian banks. According to a study by ratings agency ICRA , Indian banks will need about Rs 6 lakh crore of capital over the next nine years to meet the norms. The Basel-III norms, which seeks to strengthen regulation, supervision and risk management in the banking sector, is to be implemented in phases beginning January 2013. The capital infusion roadmap will be prepared after detailed consultations with banks and the finance ministry. The decision to shift the responsibility to the Plan panel is also consistent with the change in the treatment of capital provided to banks in the budget for 2011-12. "Funds given to banks for capitalisation is clearly capital expenditure and should fall within plan expenditure," the official said. The Planning Commission, the nodal agency for distributing the resources allocated to the central plan among various government programmes, is in a better position to provide funds for capitalisation of banks on a priority basis through reallocation of resources. The Plan panel is finalising the approach paper to the 12th Five-Year Plan, which begins from April 1, 2012, and bank capitalisation could be taken up. The government has a bank capitalisation programme to strengthen public sector banks and raise government holding to 58%. This would entail providing enough funds to banks to help them attain a mini mum 8% Tier-I capital adequacy ratio. Tier -I capital adequacy ratio is the ratio of a bank's core financial strength (equity capital and disclosed reserves) to its total risk-weighted assets. FM Pranab Mukherjee had said in his budget speech that the government would infuse Rs 6,000 crore in 2011-12 in state-run banks. The government will provide for Rs 20,157 crore in 2010-11. Most of this funding has been possible through a line of credit provided by the World Bank . "Indian banks meet Basel III standard for capital, that is at the aggregate level. It is quite possible that a few individual banks may have to augment capital," Reserve Bank of India governor D Subbarao had said recently. The government's initial plan was to provide for Rs 37,586 crore in 21 public-sector banks via the equity route, or through innovative Tier-I instruments by 2012. |
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