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Finance Ministry to Review Strategies to Raise Capital for the State-owned Banks

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Published on : Apr 28, 2015

The public sector banks in India have been asked by the finance ministry to present their plans to raise money through public offers, including qualified institutional placements. The presentation will assess the key points such as overall performance, credit growth, and market valuation. As mentioned by a senior finance ministry official, the government would also assist the state-owned banks in raising capitals through public offerings. Jayant Sinha, the minister of state for finance, will review the performance of the public sector banks which have been affected by rising bad loans.

Due to the stalled infrastructure projects, banks have faced increasing number of bad loans which have negatively affected their overall performance. Moreover, an investor will not find it beneficial to take the public offer if the balance sheet of the bank has a fair share of bad loans. Last year, the state-owned banks reflected gross bad loans worth Rs 2.6 lakh crore, a whopping amount which will affect their initiatives for floating public offers. 

To take a stock of the situation, finance ministry along with Reserve Bank of India, and other ministries such as shipping, road, and power will meet the banks. The finance ministry has allocated Rs 7,940 for bank capitalization. Keeping the government’s stake at minimum 52%, the ministry has stressed the banks to raise money from the market. 

The banks have mentioned that with their weak performance, the conditions imposed to raise capital from the market are not conductive. Also, three of the public-sector banks, including Union Bank of India and Allahabad Bank have asked to be granted exemption from paying dividend, as they stress to improve their capital adequacy by re-investing the profits. The government is open to other strategies suggested by the banks to raise capital and bring them at par with private banks.