Govt prepares 4-yr blueprint for fund infusions in state-run banks

The government has prepared a four-year blueprint for fund infusion in public sector banks. According to the blueprint, the infusion will vary from Rs 44,000 crore to Rs 58,000 crore over the stipulated time span, reports CNBC-TV18.

The fund infusion in public banks is likely to depend on the extent of equity dilution by government. To maintain a 62 percent stake, the government needs to infuse Rs 58,000 crore over 4 years. Similarly, to retain 58 percent in PSBs, it needs to infuse Rs 52,000 crore, whereas to have 51 percent, it requires to infuse Rs 44,000 crore over the four years.

The government is likely to seek Cabinet nod for stake sale in PSBs on a case-by-case basis. It does not want its stake in PSBs to fall below 51 percent or be higher than 62 percent.

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India’s state-run banks have been reeling under severe capital constraints, especially in the backdrop of rising bad loans in the banking sector, which, in turn, increased the fund requirements of banks and also due to the so-called Basel-III capital requirements. The capital requirement of India’s state-run banks to meet the Basel-III norms over the next five years is about Rs 2,40,000 crore.

In the FY15 government has budgeted to infuse Rs 11,200 crore in state-run banks and Rs 14,000 crore in the year before that.

Government owns majority stake in state-run banks but it has been largely reluctant to bring down its holding these banks.

Early this year, an RBI expert-panel under former Axis Bank chairman P J Nayak, had proposed to privatize state-run banks by bring down government stake below 51 percent. Besides the Basel-III requirements, rising bad loans add to the capital requirements because banks need to set aside more money to cover such loans.