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Indian Government has decided that in anticipation of increased capital requirement due to Basel-II accord, return of equity from nationalised banks is not needed. This announcement follows the RBI’s view that banks may require further recapitalisation to raise their capital adequacy ratios from 9 per cent now.
Several public sector banks, including leading banks such as Punjab National Bank, Bank of Baroda, Oriental Bank of Commerce, Indian Overseas Bank, Syndicate Bank, Bank of India and Andhra Bank had sought the Government permission to return part of their equity.
By trimming their capital base, the bank were hoping to show a sharp improvement of the earnings per share (EPS) which would have resulted in better valuation of their shares in the stock exchanges.
In the last three financial years, Rs 609.96 crore has been returned by the banks that had tapped the market. Over the years, banks like Punjab National Bank, Andhra Bank, Bank of India and Vijaya Bank have returned equity to the government.
The government has brought Rs 20,446 crore into public sector banks between 1985-86 and 2001-02, which were invested by the banks in recapitalisation bonds.
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