The union cabinet Wednesday decided to permit public sector banks (PSBs) to raise up to Rs.160,000 crore from capital markets by diluting government holding to 52 percent in phases so as to meet Basel III capital adequacy norms.
“Capital requirements of banks have increased under Basel-III. The quantum of capital support needed by banks is huge, which cannot be funded by budgetary support alone,” a cabinet communique said.
“If the PSBs are permitted to bring down government holding to 52 percent in a phased manner, they can raise up to Rs.1,60,825 crore from the market,” it added.
The cabinet asked the public sector banks to broadbase retail shareholding while going in for the fund raising.
The government controls 22 of the 27 public sector banks through majority holding. In the remaining 5 banks, state-run State Bank of India holds majority stake.