Rs 50,000 cr required in '07-08 for Basel-II CAR

PSU banks alone will need a whopping Rs 50,000 crore in the current financial year to meet capital adequacy requirements under Basel-II norms, a finance ministry official said on Thursday.

"Public sector banks will need to mobilise Rs 50,000 crore by the end of the financial year, for the implementation of Basel-II norms," secretary (financial sector) Vinod Rai said. Banks are required to set aside Rs 9 as capital for every Rs 100 they lend.

"The current year may witness banks use a variety of options to shore up capital for Basel-II, including raising tier-I and II capital. More than a dozen public sector banks have enough headroom to dilute government equity up to 51% and raise capital," a government official said. However, sustaining GDP growth at current levels will require greater credit growth.

It has been argued that the credit-to-GDP ratio in the country at 30% is much lower than in developed countries where it is more than 150%. Bankers were divided on the moderation of credit growth. Canara Bank CMD MBN Rao said, "A calibrated increase in credit growth is desirable."

The capital requirement will increase if credit continues to grow at the same pace as the last three years: 28-30%. The Basel-II norms, that will be in force for 2007-08, require banks to assign risk weightage based on borrower's credit rating