Consolidation of Public Sector Banks IS Compulsion To Comply Basle III Norms Just AS FDI is Compulsion To Combat Fiscal Deficit

Dirty Politics of Central Government has landed India into Crisis; Social, Political International as well as Financial. Present position of India's economy is that despite all big promises made by the government, they are unable to contain price rise, they are unable to control cancer of corruption and they are unable to control and reduce dangerous growth of naxalism and terrorism.

Government is unable to stop creation of black money and unable to remittance of black money to foreign banks. Crime escalation remains unabated. 

Similarly exports are coming down and import is going up . Fiscal and Current Account deficit is increasing year after year. Government is now under compulsion to invite Foreign Direct Investment 

Despite all relaxation in interest rates Reserve Bank of India is unable to control inflation. Banks run by government are no more in a position to undertake the job of micro financing. Farmers and small traders as also small scale enterprises are not getting enough fund from banks because of the fact that banks are busy in earning profit by lending to rich borrowers.

 Banks were nationalised for social upliftment but unfortunately during course of time they have now become Bank for growth of personal property of corporate houses and bankers themselves. Social banking has been replaced by class banking and social welfare oriented banking has been replaced by profit oriented banking 

Further to add fuel to fire, due to corrupt judiciary and administrative services., it has become difficult for banks as well as the government to recover the money from willful defaulters of bank loans. Indians judiciary and Indian administrative services are unable to help banks in recovering money from bank defaulters. Recycling of money has slowed down and money has been blocked by rich as well as poor farmers. 

Money lent to borrowers does not come back to bank as per stipulated time schedule. Due to this banks are frequently victim of liquidity crisis.. Politicians are not ready to stop their bad culture of using banks for political purpose.

RBI has to help banks to cope with the crisis because credit deposit ratio has increased to almost 90 percent  Present bitter truth is that small banks are facing acute crisis of capital to comply Basle III norms. And it is not surprising that they have become takeover target of bigger banks. 

Finance Minister understands it very well that central government is not in a position to infuse capital to these sick banks capital as required under Basle III norms and hence he has been advocating merger and consolidation of banks. Hence Consolidation of Public Sector Banks IS no more a business strategy to make world class bank. But it is more or less a case of Compulsion To Comply Basle III Norms Just AS FDI has become  Compulsion for central government To Combat Fiscal Deficit

Present government can apply all powers to recover eight lac rupees from Arvind Kejriwal and a few crores from Ramdeo. But it finds difficult to recover thousands of crores of rupees from Kingfisher or Deccan Chronicle or Zoom developers.

This government can teach a lesson to Balkrishna for his microscopic fault in his application for getting a passport but cannot teach lesson to those who are involved in 2G scam or Coal scam or CWG scam or Bank loan scam.

Government can allow spending hundreds and thousands of crores of rupees on IPL but cannot afford or cannot manage enough fund for construction of warehouses, cold storages and godowns for storing food grains.

Government can put farmers and small traders in jail for evasion of income tax or sales tax or for encroachment on road, but can punish corporate for evasion of tax to the tune of crores of rupees or for not paying income tax or service tax or sales tax or custom duty.

Government can appoint Lokayukt for treating the misuse of rural NGOs and SHGs but cannot treat Salman Khurshid with same stick. Government can transfer officers who put hurdles in the way of Vadra in creation of wealth but cannot punish those ministers who extended illegal and improper help to Vadra in grabbing land at microscopic petty amount.

Government can impose penalty to salaried class people or persons in low income or middle class income group but do not have courage and will to impose penalty on big corporate houses that are not paying income tax even though they are earning crores and crores every year.

Government can force bankers to lend money to real estate builders and corporate houses at lowest rate say at base rate but unable to stop Micro Finance Companies who charge exorbitant rate of interest when they give money to farmers and small traders.

And so on…………………………………….

S&P: Capital raising woes may turn small banks into takeover targets

Starting April 1, Indian banks will begin to implement the new Basel-III capital requirement

The Basel-III norms, which kick in from April 1, could make life harder for small Indian banks. Some could even become takeover targets, as they might find it tough to raise capital and withstand the intense competition, according to a Standard & Poor’s (S&P) report.

According to the rating agency, Indian banks might need Rs 2,60,000 crore of additional capital by 2018 as they strive to meet Basel-III requirements.

Starting April 1, Indian banks will begin to implement the Basel-III capital requirement, which will increase their capital requirement in phases.

Some smaller banks may face difficulties in meeting Basel-III requirements, though the extent will vary from bank to bank. For weakly capitalised banks, the capital requirement could go up to two to three times their current market capitalisation, said S&P.

Some smaller banks could also become takeover targets, which could result in consolidation of a fragmented sector, said Deepali Seth, S&P’s credit analyst.

The biggest challenge for the sector is the state of Indian public finances. “The government’s large fiscal deficit will limit its ability to inject capital into government-owned banks, which currently have less capital adequacy than the private and foreign banks operating in India,” said S&P.

Banks could need additional capital of at least Rs 69,100 crore to meet the Reserve Bank of India’s eight per cent requirement for the common equity Tier-1 and capital conservation buffer ratio. The additional requirement could rise to Rs 2,60,000 crore, due to a tendency to hold higher-than-minimum capital and the limited market for hybrid instruments in India.

http://www.business-standard.com/article/finance/capital-raising-woes-may-make-small-indian-banks-takeover-targets-s-p-113031800377_1.html

Banks may need Rs2.6 lakh crore more capital for Basel III: S&P

Higher capital requirement under Basel III will increase the pressure on Indian banks to raise capital

Mumbai: The banks in India may require additional capital of upto Rs2.6 lakh crore by 2018 as they migrate to the capital intensive Basel-III framework, Standard & Poor’s (S&P) said on Monday.

“We estimate Indian banks will require minimum additional capital of about Rs69,100 crore to meet the Reserve Bank of India’s (RBI) 8% requirement for the common equity tier 1 and capital conservation buffer ratio,” it said.

“The additional requirement would go up to Rs2.6 lakh crore given a tendency for banks to hold higher-than-minimum capital and the limited market for hybrid instruments in India,” the rating agency added.

The Basel-III is the new framework designed by central banks across the world in the wake of 2008 financial crisis and primarily aims at having deeper capital buffers to meet any eventuality.

Starting 1 April this year, the country’s banks will start implementing the new rules released by the sector regulator RBI and will fully migrate to the revised standards in the next five years.

“The higher capital requirement under Basel III will increase the pressure on Indian banks to raise capital and can lead to some changes in the industry,” the S&P statement said, adding that the top-tier banks are better-placed to manage the transition.

The biggest challenge to the banks, a majority of which are state-run, is the public finances, its credit analyst Deepali Seth said.

“The government’s large fiscal deficit will limit its ability to inject capital into government-owned banks, which currently have less capital adequacy than the private and foreign banks operating in India,” she said.

Additionally, some lenders may struggle to raise the required capital as banks simultaneously enter the market to bring up the required amount, Seth said. “A few of the smaller banks could become potential takeover targets, which could result in consolidation in India’s currently fragmented banking sector,” she said.

http://www.livemint.com/Industry/XGsdaZLtXcJFaSM2PYK3kJ/Banks-may-need-Rs26-lakh-crore-more-capital-for-Basel-III.html

S&P: India Banks May Need $48 Billion More for Basel III

By NUPUR ACHARYA

MUMBAI--Ratings company Standard & Poor's said Monday India's banks may need up to 2.6 trillion rupees ($48 billion) of additional capital over the next five years as they implement the Basel-III international banking guidelines.

The Basel-III rules call for banks to increase their capital and holdings of highly liquid assets in order to cushion them from financial shocks.

S&P's estimate is sharply lower than what India's central bank expects the country's banks may need. Reserve Bank of India Governor Duvvuri Subbarao in September said local banks may need an additional 5.0 trillion rupees by March 2018.

Indian banks' transition to Basel-III rules begins on April 1 and requires banks to phase-wise thicken their capital cushion.

Banks in India are finding it increasingly costlier to raise capital amid concerns over rising bad loans even as the country's economic expansion slows to its weakest pace in a decade. Also, the government's weak finances have made it tough for state-run banks to boost their capital.

"The government's large fiscal deficit will limit its ability to inject capital into government-owned banks which currently have less capital adequacy than the private and foreign banks operating in India," credit analyst Deepali Seth wrote in her report.

The ratings firm said while India's top-tier banks are relatively well-placed to manage the transition, some smaller ones may face difficulties in fully meeting the guidelines.

"For some weakly capitalized banks, the capital requirement could go up to two to three times their current market capitalization," Ms. Seth said.

As banks simultaneously tap the capital market, some may struggle to raise the necessary money, the report said. A few smaller ones could potentially become takeover targets, it added.

http://online.wsj.com/article/SB10001424127887323415304578368243710054064.html