A shot of capital for state-run banks in the offing, says Chidambaram

Last Updated: Thu, Nov 15, 2012 15:10 hrs

The government proposes to infuse more capital for the state-owned banks and it will soon decide how much additional funds are needed, said Finance Minister Palaniappan Chidambaram at a news conference here on Thursday.

He was addressing the mediapersons after a meeting of the Chairmen and Managing Directors of the nationalised banks held earlier in the day.

"All banks will require additional capital; at least most banks will require additional capital to waive a budgetary provision for infusing additional capital and that decision will be taken in the next few weeks about infusing additional capital into banks. All but one bank have tear one capital above eight percent, well above the Basel norms but credit expansion has to take place additional capital has to be infused. So, we will infuse additional capital into the banks," Chidambaram said.

However, the combined injection of capital will not exceed the 150 billion rupees provisioned in the budget for the fiscal year ending in March 2013, Chidambaram noted.

Even at the maximum, the amount injected would fall short of the public banks' capital requirements.

In September, the country's central bank, Reserve Bank of India, did confirm that the government has to infuse 900 billion rupees into state-run banks to meet the upcoming Basel III requirements.

Chidambaram also said that the existing 63,200 vacancies in the banks would be filled this year by fresh recruitment.

"This year all banks put together proposed to recruit 63,200 persons. The total number of vacancies at the end of last year was 84,489 at all levels. Out of these 84,489, 63,200 vacancies will be filled this year by fresh recruitment. The point I am making is there is a huge job opportunity for young men and women in the banking sector and they must take advantage of it," added Chidambaram.

India's state-run banks are faced with rising non-performing assets (NPA) and write-offs because of poor lending decisions and as companies are struggling to pay off loans in a slowing economy.

Chidambaram estimated state banks' bad loans rose by 0.98 percent at the end of September, compared with the same month a year ago.

"NPAs (non-performing assets) is a problem. For the entire public sector group the NPAs level lists increased from September 2011 to September 2012 by about 0.98 percent. This is the reflection of the slowdown of the economy and is a reflection of sound sectors, which are under stress. I asked the chairpersons which are the sectors under stress and they have given me a list of sectors, which are under stress. So, we will have to now look at it sector-wise and try to find ways and means by which the sector can be helped to recover. If the economy improves, if the growth improves, the sector will recover," the minister said.

Further, Chidambaram said the government would be taking steps to improve sectors such as textiles, steel, construction and telecom infrastructure that are at the root of the bad loans at public sector banks. However, he did not spell out the details.

The top three banks that need the most capital are Indian Overseas Bank (IOBK.NS), Central Bank of India (CBI.NS) and Bank of Maharashtra (BMBK.NS), Chidambaram said. Shares in the three lenders rose between 1-2 percent each on Thursday.

India's economy is likely growing at its slowest pace in a decade, and the government is under pressure to pass policy reforms to improve growth and keep its fiscal deficit under control.

Chidambaram has signalled the government is seeking to keep the fiscal deficit at 5.3 percent for the fiscal 2012/13 year, slightly wider than the 5.1 percent targeted in March. (ANI)

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