Money & Banking
Government to finalise fund infusion for PSU banks soon

Rights issue for recapitalisation of banks is under consideration of the government and it will be done for all state-run banks

New Delhi: The Union government has said it will finalise Rs15,000-crore capital infusion for public sector banks soon to help them enhance capital base and increase lending capacity, reports PTI.

 

"We will finalise recap for banks soon," Financial Services Secretary DK Mittal told reporters.

 

Rights issue is under consideration for recapitalisation of banks, he said, adding that if government opts for rights issue for banks, it will be done for all banks.

 

Last week, Finance Minister P Chidambaram had said that most banks would require additional capital and fund allocation to various banks would be decided in the next few weeks.

 

"We have budgetary provision for infusing additional capital and decision would be taken in the next few weeks about infusing additional capital into banks," Chidambaram had said.

 

"All but one bank have Tier I capital of above 8% well above Basel norms. But if credit expansion has to take place, additional capital has to be infused. So we will infuse additional capital into the banks," he had said.

 

He had said the government has made Budget provision of Rs15,000 crore for the current fiscal in this regard and allocation to various banks would be made.

 

The top three banks which require capital are Indian Overseas Bank, Central Bank of India and the Bank of Maharashtra, he informed.

 

"We are looking for some capital support from the Government ... we have asked for Rs1,500 crore from the Government," Indian Overseas Bank Chairman and Managing Director M Narendra said here today.

 

In 2010-11, the government pumped Rs20,157 crore in public sector banks to maintain tier I capital at 8% and increase the government equity in some banks to 58%.

 

In the following fiscal, public sector banks got Rs12,000 crore for improving their capital adequacy ratio.

 

In order to strengthen risk management mechanism, the Reserve Bank issued guideline for Basel III earlier this year.

 

The implementation of the capital adequacy guidelines based on the Basel III capital regulations will begin from 1 January 2013.

 

The guideline envisages banks to maintain a minimum total capital (MTC) of 9% against 8% prescribed by the basel Committee of total risk weighted assets.

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RBI asks banks to evaluate unhedged foreign currency risks

RBI said unhedged forex exposure of corporates is a source of risk to the corporates as well as to the financing bank and the financial system

Mumbai: The Reserve Bank of India (RBI) has asked banks to put in place a mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of corporates and price them in the credit risk premium, reports PTI.

 

It also advised banks to furnish compliance and action taken reports on the subject before end-December 2012.

 

In a notification, RBI said unhedged forex exposure risks are not being evaluated rigorously and built into pricing of credit despite instructions.

 

"It is emphasised that unhedged forex exposure of corporates is a source of risk to the corporates as well as to the financing bank and the financial system," it said.

 

It further said a large unhedged forex exposures of corporates have resulted in some accounts turning non-performing.

 

"Banks are therefore advised that in accordance with the guidelines of February 2012 they should put in place a proper mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of corporates and price them in the credit risk premium," it said.

 

Banks should also consider stipulating a limit on the unhedged position of corporates on the basis of banks Board-approved policy, it said.

 

Banks are required to monitor the unhedged portion of forex exposure of the corporates whose total foreign currency exposure are high at above $25 million of its equivalent and extend loan above $10 million only on the basis of a well laid out policy.

 

Banks are also required to take into account their exposure from all sources including foreign currency borrowings and external commercial borrowings in case of consortium / multiple banking arrangements for arriving at aggregate unhedged foreign currency exposure of clients.

 

In a separate notification, RBI also asked banks to strictly adhere to the instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among themselves.

 

"Any sanction of fresh loans/ad hoc loans/renewal of loans to new/existing borrowers with effect from 1 January 2013 should be done only after obtaining/sharing necessary information," RBI said.

 

Banks would be liable to action in case of non-adherence to the instructions including imposition of penalty, RBI said.

 

It further asked them to put in place an effective mechanism for information sharing by 31 March 2012.

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RBI rejected advice of external experts on interest rate cut

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