Govt may delay Rs 14k cr fund infusion plan for PSU banks

The government may delay Rs 14,000 crore fund infusion in the public sector banks in view of volatile market conditions. As per the plan, the government wanted to infuse funds by the end of September but it may wait for market to stabilise. Capital infusion may now not happen in September because of stock market volatility. It is advisable to invest when market stabilises, sources told PTI. Once the stock prices reaches a stable level, the likely chances of losing substantial amount of money is lower, sources said. The Finance Ministry will finalise the bank-wise fund allocation by the end of this month. However, disbursement may not happen in September. With fall in share prices of banks, the government will get more number of shares. Consequent to this, government holding will be more than what was envisaged. Capital will be injected by issue of preferential shares. Since fresh shares are issued, the shareholding of the government goes up. The BSE banking index comprising of 13 stocks of various public and private sector banks rose marginally by 0.75% to 10,511.30 points. Last month, Finance Minister P Chidambaram had said all public sector banks are meeting Basel III requirements for capitalisation, though four of them -Indian Overseas Bank, IDBI Bank, Bank of Maharashtra and Dena Bank -- have Tier-1 capital below 8%.

Stating that the current economic scenario is similar to 1991-92 crisis, foreign brokerage Barclays said credit growth of banks will slow down to 10-11 per cent levels, just like it did during the crisis in early 90s.

Barclays drew a slew of parallels between the ongoing economic scenario and the one during the dark period of 1991-92, like a sharp GDP slowdown, strained external account and sticky inflation. It added that in 199192, capital spending and credit growth were weak, and hence, going to the bond markets was an unattractive option for banks.

Barclays said given their inflexible cost structures, public sector banks would get impacted because of this while others like Yes Bank and Indusind Bank, which are witnessing a string of growth in operating expenses because of network investments will also be hit.