Mumbai : Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms, Basel III, RBI Governor D Subbarao has said.

The new norms are to be implemented in a phased manner by banks by March 2018.

The government, which owns 70 percent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the Public Sector Banks (PSBs) at the current level to meet the norms.

Subbarao said “fiscal constraints poses significant challenges” to the government to re-capitalise banks to help them meet the Basel III norms, but bringing down its holdings to below 51 percent can help tide over the problem.

“Reserve Bank’s estimates project an additional capital requirement of Rs 5 trillion (additional capital required by all banks to meet Basel III norms).

“… If the Government opts to maintain its shareholding at the current level, the burden of recapitalisation (in PSBs) will be of the order of Rs 900 billion,” he said at the FICCI-IBA Banking Conference in Mumbai on Tuesday.

Of the total Rs 5 lakh crore (Rs 5 trillion), equity capital will be of the order of Rs 1.75 lakh crore and Rs 3.25 lakh crore as non-equity.

He said the government has two options– either to maintain its shareholding at the current level or bring down its shareholding at 51 percent.

The RBI Governor, however, said that if the government decides to reduce its shareholding in every bank to a minimum of 51 percent, the burden reduces to under Rs 70,000 crore.

He said that providing equity capital of this size in the face of fiscal constraints poses significant challenges to the government.

“The government has two options: either to maintain its shareholding at the current level or bring down its shareholding at 51 per cent in all the banks across the board,” he said.

However, Subbarao asked, “would the Government be open to reducing its shareholding in PSBs to below 51 per cent? If the Government decides to pursue this option, an additional consideration is whether it will amend the statute to protect its majority voting rights.”

Referring to the Rs 1.75 lakh crore Tier I capital to meet Basel III norms, Subbarao said the amount that market will have to provide will be Rs 70,000 crore to Rs 1 lakh crore depending on how much the government will provide.

He said market has the capacity to offer this much funds as over the past five years banks have raised equity capital worth Rs 52,000 crore.

No need to bring infra credit under PSL: Chakrabarty

RBI Deputy governor KC Chakrabarty has said there was no need to classify banks’ advances to infrastructure sector as priority sector lending (PSL) saying there is enough credit flow to this critical sector.

“I have no problem in banks lending to infrastructure companies, but don’t classify that as priority sector lending,” Chakrabarty told reporters on the sidelines of a banking summit organised by the industry body Ficci and the Indian Banks Association in Mumbai on Tuesday.

Chakrabarty said there is no problem of credit flow to the infrastructure sector, which is estimated to require investments of over USD 1 trillion during the 12th Plan period starting this fiscal.

The high credit flow to the infra sector, which involves longer gestation projects, from banks worries the Reserve Bank due to the likely asset liability mismatches, he said.

“Infrastructure has no problem of credit. In fact, we are worried that banks are giving too much credit to infra companies,” he said, without pointing the exact concerns.

Even after coming out with the final guidelines on priority sector lending norms in July after the customary consultative process, Governor D Subbarao had said during 30th July credit policy that the central bank would be revisiting the norms after some bankers, especially from large foreign banks, expressed reservations.

The bankers’ reservation include making a foreign bank with over 20 branches at par with domestic ones and making them set aside 40 percent of credit as PSL, exclusion of a host of segments from PSL in RBI’s bid to encourage direct lending to beneficiaries rather than through intermediaries, among others. The RBI brass met bank chiefs last week to discuss the same issue.

On the exclusion of certain part of export credit from PSL, Chakrabarty said credit to small scale industries and agricultural exports is already classified as PSL, as per the norms, and the RBI will not budge in case someone makes the demand for classification of credit to export-oriented big corporates as PSL.

Following the MV Nair panel report on PSL, which sought to place large foreign banks – with over 20 branches to begin with – on par with domestic lenders on the PSL front, some of the affected foreign banks (there are only three such lenders now StanChart, HSBC and Citi) have reportedly sought inclusion of lending to the infra sector as PSL.

This demand, along with their call for inclusion of export financing as PLS lending, if accepted, would have helped them meet the new 40 percent PSL target as they don’t have the branch presence to reach out to farmers and MSMEs in the far-flung areas.

The Nair committee report has called for increasing the PSL target for foreign banks from 32 percent to 40 percent, which is the current target of the domestic banks.

On foreign banks, he said the RBI has not arrived at any conclusion on any revision as yet.

On the likely scaling down of foreign banks’ expansion plans as a result of the new PSL norms, he said, “you do priority sector lending, expand and participate in the growth story.”