Chennai: State Bank of India (SBI) chairman Pratip Chaudhuri on Saturday said the government will infuse Rs 4,000 crore in the bank to shore up its depleted capital adequacy ratio.
SBI, in dire need of funds to continue its business, had asked for at least Rs10,000 crore from the government to shore up its tier-I capital, or core capital, comprising of equity and reserves. The original demand ranged between Rs 20,000 and Rs 30,000 crore.
However, the cash starved government, that recently increased its second half market borrowing programme by 32%, or Rs 58,500 crore, has committed much less than what the ban was expecting.
“Government has committed Rs 4,000 crore for us. The option will be discussed and decided by the government whether it will be a preference share allotment or rights issue,” said Chaudhuri at the sidelines of Bancon, the annual banking event, in Chennai.
Chaudhuri said his bank needs at least Rs 3,000 crore to make the tier-1 capital adequacy to 9%, considered to be healthy for a bank under international accounting norms.
SBI’s tier-I capital was eroded by 2% after it set aside Rs 7,500 crore from its reserves towards pension for its employees. Its tier-I capital now stands at 7.6%. After it gets the fresh set of money from the government, its tier I capital will cross 9%.
Moody’s recently cut the financial strength rating of the bank to D+ from C- on capital and asset quality concerns.
Chaudhuri said the bank would need around Rs 30,000-40,000 crore as capital for the next three years. “It will come partly by internal accruals, partly by shareholders – not only by the government, and partly by economizing capital usage,” he said.
Earlier in the day, C. Rangarajan, chairman, economic advisory council to the Prime Minister had said, ”Public sector banks face a peculiar problem. Given the current government policy of no stake dilution below 51%, capital for the public sector banks will have to come from the government budgets, banks’ own resources and from public issues. The availability of capital through budget sets a limit on the extent of expansion of credit by these banks. With credit growth between 15 and 20% per annum, if the public sector banks are to retain their market share, there will be need for continuous injection of capital into these banks.”