Suresh Krishnamurthy

EVEN without the dilution of Government stake to less than 51 per cent, listed public sector banks should be able to raise more than Rs 30,000 crore in additional capital (equity plus debt) with their current financials.

That should enable them to finance close to Rs 3,00,000 crore in additional loan assets. Considering an annual credit expansion of about Rs 1,50,000 crore, they should be able to carry on business as usual for the next two years at least.

The profits earned and retained in the business during this period will be added bonus.

As the table shows, PSU banks in aggregate can mobilise roughly Rs 11,300 crore from equity markets, without breaching the 51 per cent Government holding limit. An equivalent amount can be raised as tier-2 capital (capital that stands lower in priority to depositors' monies in the event of a bank's failure) under the current regulations.

For instance, the Government's (RBI) shareholding in State Bank of India is 59.73 per cent. At the current market price, SBI can mobilise Rs 3,000 crore from equity markets through an offer that will reduce the Government stake to 51 per cent. Similarly, Punjab National Bank can garner Rs 800 crore without breaching the 51-per cent Government holding limit.

In addition, even with their current capital base, public sector banks have room to manoeuvre on the tier-2 capital front and muster close to Rs 5,200 crore. Besides, public sector banks added nearly Rs 11,000 crore to their reserves in FY 2005 after payment of dividend. An amount equivalent to the additions to reserves can also be raised as tier-2 capital. These too will boost capital adequacy and buttress the business expansion plans of these banks.

The Government's stated position of no dilution of stake below 51 per cent is thus not a cause for alarm even in the backdrop of a change in regulatory requirements relating to capital adequacy based on the Basle II accord.

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