State Bank of India to receive fund infusion

The Indian government is on the process of assessing the lender’s capital requirement if it should have a Tier I capital adequacy ratio of 9-9.5%.

State Bank of India might have missed out on fund infusion in the Budget, but it is in line not just to receive additional equity support but also get more than what other public sector banks have received. 

Government officials said the government is assessing SBI's capital requirement and the finance ministry is contemplating if it should have a Tier I capital adequacy ratio of 9-9.5% against the prescribed 6%. In case of all other public sector players, the government is trying to ensure that the Tier I capital be at least 8%. The move is aimed at ensuring that SBI retains its premier position in India and is able to access capital at a lower cost. "There are several global banks which have a far higher capital adequacy ratio and we want to ensure that SBI is not at any disadvantage," said an official. 

A lower capital adequacy ratio, together with India's investment grade sovereign rating, would make SBI uncompetitive compared to its peers in developed markets and raise the cost of funds. 

Capital adequacy ratio is the proportion of capital to the bank's risk. Tier I refers to the core equity capital with a bank. As a bank increases its business, it needs to raise more resources to meet the capital adequacy ratio. 

View the full story in Times of India.