9 PSU banks to gain from equity infusion.

Finance minister P Chidambaram announced on Wednesday that the government will infuse additional capital in those public sector banks, which have capital adequacy ratio (CAR) of less than 12 per cent to take the adequacy ratio above that level. The move is a pre-emptive measure to stave off any adverse impact of the global financial crisis on the Indian banking system and is likely to calm the nerves of both customers and investors.

According to a Financial Chronicle analysis, the move for capital infusion would help at least nine public sector banks that have a capital adequacy ratio of less than 12 per cent. They include Allahabad Bank, Bank of Maharashtra, Central Bank, Dena Bank, Indian Overseas Bank, Punjab and Sind Bank, Syndicate Bank, UCO Bank and Vijaya Bank.

Of these, three have a CAR of less than 11 per cent while the Central Bank of India has the lowest capital adequacy ratio of 10.01 per cent as of June 30, 2008. The other two banks having capital adequacy ratio of less than 11 per cent are Vijaya Bank (10.47 per cent) and UCO Bank (10.53 per cent).

“There are only four public sector banks, which have a CAR of less than 11 per cent. To take them to 12 per cent, an amount of about Rs 1,000 crore will be required. For most other banks, the CAR is above 11 per cent,” an official in the finance ministry, who did not wish to be identified, said.

Private sector banks are better placed in terms of CAR than their public sector counterparts. Only three private sector banks have a CAR of less than 12 per cent. If these private sector banks are to increase their CAR, they will need only about Rs 300 crore.

However, how much additional capital these banks put together requires is not clear. Also, the government is still working on the nitty gritties of the capitalisation scheme. When contacted by Financial Chronicle, Syndicate Bank chairman and managing director George Joseph said: “The measure announced by finance minister would certainly help us, but how much additional capital we would require is yet to be calculated."

The latest finance ministry measure will have no impact on banks having capital adequacy ratio of above 12 per cent, including the country's largest bank, the State Bank of India, which has a capital adequacy ratio of 12.64 per cent as of June 30, 2008.

Source: MydigitalFC.