With the Government taking its own time to infuse funds, the State Bank of India has embarked on a ‘capital hunt' within the bank.
This exercise entails wringing out efficiencies from the over 100 identified ‘levers' which will lead to capital savings.
The core capital of the country's largest bank is currently at 7.47 per cent. This is below the minimum eight per cent that the Government requires public sector banks to maintain.
When it comes to infusing capital into public sector banks, the Government is hamstrung by the fact that tax revenues are not up to the mark due to a slowing economy. Moreover, the stock markets are not conducive for the Government to divest its stake in public sector undertakings and mopping up funds.
The SBI Chairman, Mr Pradip Chaudhuri, said the capital conservation exercise coupled with internal accruals will see the bank's core capital go up to 9 per cent by March-end 2012.
SBI has made a beginning on the capital savings front by resorting to insurance cover from the Export Credit Guarantee Corporation on all loans given to exporters. Further, it is seeking credit guarantee cover on all micro and small loans from the Credit Guarantee Fund Trust for Micro and Small Enterprises.
The export credit guarantee cover on loans given to exporters and the credit guarantee cover on all micro and small loans will result in capital savings of Rs 3,000-4,000 crore, said Mr Chaudhuri.
If loans have such an insurance cover, then banks' can set aside less capital on the portion of the loans for which the cover is available.
The bank wants to plug capital leakage by working on the ‘levers', Mr Diwakar Gupta, Managing Director and Chief Financial Officer, SBI, said.
Besides resorting to credit insurance cover, proper credit rating of borrowers (so that the bank does not set aside more capital than is required) and right valuation of collateral/ security offered by borrowers could also release capital.
SBI requires about Rs 40,000 crore over the next three years to support loan growth.
Net profit up 12%
The bank reported a 12 per cent growth in net profit at Rs 2,810 crore in the quarter ended September 30, 2011 (Rs 2,501 crore).