Mumbai: Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms, Basel III, RBI Governor D Subbarao said on Tuesday.

The new norms are to be implemented in a phased manner by banks by March 2018.

The government, which owns 70 percent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the Public Sector Banks (PSBs) at the current level to meet the norms.

Subbarao said "fiscal constraints poses significant challenges" to the government to re-capitalise banks to help them meet the Basel III norms, but bringing down its holdings to below 51 percent can help tide over the problem.

"Reserve Bank's estimates project an additional capital requirement of Rs 5 trillion (additional capital required by all banks to meet Basel III norms).

"... If the Government opts to maintain its shareholding at the current level, the burden of recapitalisation (in PSBs) will be of the order of Rs 900 billion," he said at the FICCI-IBA Banking Conference here.

Of the total Rs 5 lakh crore (Rs 5 trillion), equity capital will be of the order of Rs 1.75 lakh crore and Rs 3.25 lakh crore as non-equity.

He said the government has two options-- either to maintain its shareholding at the current level or bring down its shareholding at 51 percent.

The RBI Governor, however, said that if the government decides to reduce its shareholding in every bank to a minimum of 51 percent, the burden reduces to under Rs 70,000 crore.

He said that providing equity capital of this size in the face of fiscal constraints poses significant challenges to the government.

"The government has two options: either to maintain its shareholding at the current level or bring down its shareholding at 51 percent in all the banks across the board," he said.

However, Subbarao asked, "would the Government be open to reducing its shareholding in PSBs to below 51 percent? If the Government decides to pursue this option, an additional consideration is whether it will amend the statute to protect its majority voting rights."

Referring to the Rs 1.75 lakh crore Tier I capital to meet Basel III norms, Subbarao said the amount that market will have to provide will be Rs 70,000 crore to Rs 1 lakh crore depending on how much the government will provide.

He said market has the capacity to offer this much funds as over the past five years banks have raised equity capital worth Rs 52,000 crore.


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