Market fall hits banks' fundraising plans

Public sector banks have raised more than double the capital infused by the government through equity and bond markets and from the sale of non-core assets between the financial years 2008-2009 and 2017-18.

While banks raised Rs 2.57 lakh crore, the government infused only less than half of this at Rs 1.32 lakh crore through the Indradhanush plan, according to a parliamentary committee audit report on recapitalisation. But with markets down, bankers will have to depend more on the government this fiscal despite most of the bank Boards having approved equity fund raising programmes.

The capital support by the government will make banks more resilient, considering more than half of the Rs 121 lakh crore of bank deposits is money that retail depositors have put in the form of term deposits and savings bank accounts.

All lenders have to be compliant with the Basel III norms by March 2019. Basel III, which focuses on additional capital buffers, is an international regulatory framework for banks being implemented in India in phases since 2013. Extra capital buffers that the banks will have to keep under this regulation will be fully implemented by March 2019.

Bankers say that government is toying with the idea of advancing the recapitalisation programme, which, if implemented, will lift the pressure of raising capital.

Praveen Kumar Gupta, managing director, State Bank of India, said, "We are focusing on selling some of our non-core assets. This financial year we have already sold 4% stake in SBI General and also exited from part of our investment in NSE. Earlier this week, we have taken an enabling provision from the Board to raise some Tier II capital from the market."

Banks raised Rs 48,725 crore from the equity markets during this period and sale of non-core assets gave them about Rs 18,364 crore worth of assets. They also raised Rs 1.33 lakh crore of Tier 2 capital from the market and Rs 56,365 crore from AT-1 bonds.

Rajkiran Rai, managing director and chief executive officer, Union Bank of India, said, "With markets down, the situation has changed. Banks will have to depend on the government for the capital needs as we have to comply with the Basel III by March 2019. Post this compliance, the capital requirements will come down."

Union Bank of India also had got a Board approval to raise Rs 2,500 crore from the market, but it may be may just look at raising Tier 2 capital as the markets are down. On the sale of non-core asset sale, the bank is looking at getting about Rs 300 crore. Most banks are focusing on shedding their non-core assets, which will include excess real estate, reorganisation of bank branches by shutting down the unviable ones, selling investments in insurance companies, subsidiaries, and National Stock Exchange, in which most banks have a stake.

The audit report submitted to the finance ministry said, "PSBs have mobilised comparable amounts from the market with a rising trend in the amount of such mobilisation." The report said the higher than anticipated number of non-performing assets revealed that banks would need a higher amount of capital infusion.

Considering that capital is the key measure of the a bank's capacity for generating loan assets, it is essential for balance-sheet expansion, the committee, in its report said, adding that capitalisation is aligned with those of regulatory framework and also to raise the resilience of the banking institutions to address system-wide risks.

The government had announced a recapitalisation programme of Rs 70,000 crore from 2015-16 to 2018-19, but the asset quality review of RBI, which threw up a larger number of non-performing assets, resulted in a higher capital requirement.