A long-term programme for injecting capital into public sector needs to drawn up lest the market share of the public sector banks should come down, according to Dr C. Rangarajan, Chairman, Economic Advisory Panel to the Prime Minister.
Speaking on ‘The Indian banking system — Challenges ahead’ at Bancon-2011 here on Saturday, Dr Rangarajan said that unless this is done, the existing and new private sector banks would be forced to take up the slack.
The Indian banking system remains well-capitalised. The capital adequacy ratio for all scheduled commercial banks is now estimated at 14.17 per cent, well above the required nine per cent.
“This high ratio means that the implementation of Basel II standards will not pose much difficulty,’’ Dr Rangarajan said.
But public sector banks face a peculiar problem. Given the current Government policy of no stake dilution below 51 per cent, capital for the pubic sector banks will have to come from the Government Budgets, bank's own resources and public issues.
The availability of capital through Budgets sets a limit on the extent of expansion credit by these banks.
With credit growth between 15 per cent and 20 per cent per annum, if the public sector banks are to retain their market share, there will be need for continuous injection of capital into these banks.
“Thus the capital that needs to be injected by the Government will remain large and it has to be a continuous process,’’ Dr Rangarajan said.