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The Ministry of Finance is badessing the capital needs of state-owned banks and is expected to provide about 30,000 crores of rupees in the next budget to help them meet the minimum regulatory capital requirements in the current budget, sources said.
The first Modi 2.0 government budget is expected to be presented on July 5 by Finance Minister Nirmala Sitharaman, in the context of the strong growth of the Indian economy over 5 years, of 6.8% in 2018-2019.
In addition, public sector banks would also need capital for credit growth, which has just started to recover. Five weak banks under the RBI's ACP also require capital to maintain Basel III-compliant capital adequacy ratios.
In addition, if the government opts for another consolidation such as Bank of Baroda, the three-way merger will also require additional capital, the sources said.
It should be noted that the government has injected Rs. 5,042 million into BoB to improve its capital and to meet additional expenses resulting from the merger of Dena Bank and Vijaya Bank.
In total, the government made a record capital injection of Rs. 1.06 million in the banks of the last sector. It had been improved by the earlier provision of 65,000 crores of rupees in December 2018.
As a result of the capital injection, five banks – Bank of India, Oriental Bank of Commerce, Bank of Maharashtra, Allahabad Bank and Corporation Bank – have come out of PCA. Following the merger of Dena Bank with BoB, the group also moved out of the weak bank category. Of the 11, only five remain in the weak bank category of the Reserve Bank of India.
Regarding the mobilization of their own resources, some sources said, they are not able to exploit the capital market because of the low price of their shares.
According to them, they are banks selling non-essential badets that are not sufficient, adding that the PSB would also require a capital injection from the government for this fiscal year.
This will depend on the government's budget calculations that the budget division of the Ministry of Finance will take a final call at the time of budget preparation, the sources said.
The initial estimate indicates a capital requirement of 20,000 to 30,000 crores of Rs, provided that the banks are also able to raise funds in the market both through the sale of badets and from Actions, they added.
Many banks, including the State Bank of India and the Bank of Baroda (BoB), have already been approved by the board of directors for capital raising as needed.
For example, BoB plans to raise 11,900 crores of rupees during the current fiscal year through the sale of shares, including the program of purchase of shares by the employees to build capital to meet business expansion needs.
The bank hopes to raise Rs. 1.5 trillion from the Bank of Baroda employee stock purchase program (BoB-ESPS). ESPS will be in the overall limit of the 2019-20 investment plan of Rs 11,900 crore.
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