The Hindu : Business : Govt. willing to extend financial support to PSBs

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Thursday, Jun 19, 2008
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Govt. willing to extend financial support to PSBs

Special Correspondent

Finance Minister meets board of Central Bank of India

Centre to maintain 51% stake in PSBs
Banks look at rights issue to shore up capital

NEW DELHI: Finance Minister P. Chidambaram on Wednesday announced that the Government was ready to extend financial assistance to Central Bank of India (CBI) and other public sector banks (PSBs) in the form of rights issue, if required.

Speaking to newspersons after a meeting here with the CBI board, Mr Chidambaram said: “There are some capital constraints...If government support is necessary we are willing to give government support…There is a pattern now. The Government is willing to give support provided the banks are able to service that support in the same manner in which SBI [State Bank of India] has done it.”

SBI, it may be recalled, had received Rs 9,995.99 crore from the Government through a rights issue. Following its successful completion, other PSBs are also looking at the rights issue option as a cost-effective mechanism for raising capital.

As for CBI’s financial position, Mr Chidambaram pointed out that while the topline of the state-owned bank had notched up high growth, its bottomline was not growing and, therefore, it failed to increase the capital adequacy ratio (CAR). At present pegged at about 10.42 per cent, the bank’s CAR is expected to rise to 10.78 by the end of the current fiscal.

‘Inflation is high’

The Finance Minister reiterated that the Government was committed to keep its equity stake in various PSBs at not less than 51 per cent.

Alongside, in his first statement on inflation ever since it touched 8.75 per cent — the highest point during the UPA regime till date — Mr. Chidambaram admitted that the price spiral was high and led the Reserve Bank of India (RBI) to further tighten money supply. “Inflation is high. [The] RBI must take steps and it has taken [them],” he said.

As part of its ongoing exercise on inflation control, the RBI increased its short-term lending rate (repo rate) to eight per cent last week, which, in turn, has prompted banks to go in for a rise in lending rates for their customers.

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