(Image source from: RBI: Disinvestment in public banks not enough for Basel III norms})

Reserve Bank of India Deputy Governor, R Gandhi said today that government stake sale alone will not meet the norms of Basel III for capital adequacy.

Government is planning to reduce its share to 52 percent in each PSB. But that alone cannot generate the capital for smooth functioning and for meeting the standards.

"This may not be sufficient to fully meet the capital needs of the PSBs under Basel III norms since the projections are based on minimum requirements", Deputy Governor R Gandhi said at a Bengal Chamber seminar here.

"They should actively consider several options including non-voting rights share capital, differential voting rights capital and golden voting rights share capital", Gandhi said.

According to his speech at the Bengal Chamber seminar approximately, a sum of Rs 4.50 lakh crore would be needed for Tier I capital, out of which Rs 2.40 lakh crore would be equity capital required by banks.

Gandhi said that PSBs were "now being increasingly enabled to compete on professional basis as they are also assured of autonomy in their commercial decision making".

Public sector banks were nationalized in 1969 and 1980, which authorized the government more power and command over credit delivery system. Then after Liberalization disinvestment process began and government decided to hold at least 51 percent stake in the banks.

About BASEL NORMS

BASEL is a city of Switzerland. BASEL norms were initially designed in 1988, later updated in 2004 and 2011. They prescribe ‘safe-lending’ norms to banks. At present India is at BASEL-III norms stage.

These were to be implemented from March 2018, as per initial order of RBI. As Indian banks showed inability to raise so much capital in so little time, RBI governor Raghuram Rajan extended the deadline to March 2019.

New Finance minister Arun Jaitley has declined. In Budget 2014, he announced that banks themselves will have to raise money by selling shares to public, in a phase manner
Public sector banks actually hoped that Government of India would give them necessary capital from tax payer’s money. Raising fund only by stake sale will not generate the required capital for meeting the Basel III norms.

AW: Kannamsai