Public Sector Banks need a total capital of Rs. 2.2 lakh crore to become BASEL III compliant by 2019 which mandates to raise tier I capital to at least 7% of total risk weighted asset out of which 5.5% of Rs must be in equity form. Balance 1.5% can be in for of IPDI,PNCPS or other hybrid instruments. Ironically, this is also the size of NPAs of public sector lenders put together. Now when the Government is going to dilute its stake in PSBs to 52%,goings are going to be a tad tough for the PSBs as market is not buoyant at the moment. A slump in credit demand is giving some succour to the Banks as a robust demand of credit would have made the Banks scamper around for mopping up more capital in addition to what is required for BASEL III. Definitely sooner or later the asks will need more capital when the economy revives. Smaller Banks are finding it difficult to bear the huge expenses incurred on innovation and technology up gradation to remain competitive and profitable at the same time. Then there are issues of skill gap and talent attrition due to comparative lower wage structure in PSBs. Even SBI chairperson has voiced her dissatisfaction over this already much debated issue. Equity dilution as envisaged by the Government will contribute approximately Rs 1,60,000 crores to the government exchequer. But definitely it will erode the wealth of the equity holders.
Posted on: Sun, 14 Dec 2014 12:15:16 +0000
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