‘Govt can cut PSB stake below 51% to reduce Basel-III burden’

Reserve Bank Governor D Subbarao on Tuesday said diluting the government stake in public sector banks below 51 per cent could be one of the options before the government to capitalise them to be compliant with Basel-III requirements. PSU banks will need capital in the range of Rs 70,000 crore-Rs 1,00,000 crore to be Basel-III ready.

"Clearly, providing equity capital of this size in the face of fiscal constraints poses significant challenges. A tempting option for the government would be to issue recapitalisation bonds against common equity infusion. But this will militate against fiscal transparency," Subbarao said at the Ficci-Indian Banks Association summit here.

"In the alternative, would the government be open to reducing its shareholding in PSBs to below 51 per cent? If the government decides to pursue this option, an additional consideration is whether it will amend the statute to protect its majority voting rights," he said.

Subbarao added that should the government choose to maintain its shareholding at the current level, the recapitalisation burden would swell to Rs 90,000 crore. However, if it reduces shareholding in every bank to a minimum of 51 per cent, the burden would reduce to under Rs 70,000 crore. The RBI's estimates project an additional capital requirement of Rs 5 lakh crore for all banks, of which non-equity capital will be of the order of Rs 3.25 lakh crore while equity capital will be of the order of Rs 1.75 lakh crore.

On the issue of the market meeting this magnitude of equity capital, Subbarao said, "Data indicates that the amount that the market will have to provide will be in the range of Rs 70,000 crore - Rs 1,00,000 crore depending on how much the government will provide. Over the last five years, banks have raised equity capital to the tune of Rs 52,000 crore through the primary markets," and raising this Rs 1-lakh-odd crore over the next five years would not be an insurmountable problem.

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