FMs CAR crashes into PSU banks

Public sector banks could see their growth being constrained because of a lower-than-expected allocation for their re-capitalization in the Union Budget.The Rs 14,000-crore capital infusion announced by the finance minister,of which SBI is expected to get the lions share,falls short of industry demands.Also,capital adequacy ratio (CAR) is expected to remain under pressure as loans continue to grow and bad loan provisions eat away profits.

Against the Rs 15,888-crore recapitalization for banks and Nabard promised in the previous Budget,the government is yet to release the Rs 12,517 crore cleared for public sector banks.Finance minister P Chidambaram has promised to do so by March 31.

The finance minister is also yet to create a holding company that will raise resources to meet the capital requirements.

Bank profits will also face additional strain in FY14 because of restrictions on tax breaks hitherto available for writing off bad loans.

In the Budget,the FM has extended interest rate subvention scheme hitherto applicable to public sector banks to private lenders as well.Under this scheme,farmers get a 2% interest subvention and those who pay all installments on time get an additional 1% subvention,bringing loan cost down to 4%.

In October 2011,one of the reasons cited by rating agency Moodys for the downgrade of the countrys largest bank was that the banks CAR had come down.The good news for those who maintain savings with the Department of Posts is that the government has set aside Rs 532 crore to put in place a core banking solution for India Post.This will enable anytime,anywhere banking services to be offered by post offices.


Times of India, New Delhi, 01-03-2013


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