An unfair advantage
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Government must look at the long-term picture, stop bailing out public sector banks
The government proposes to inject additional capital into public sector banks yet again. Time and again, these banks have needed a fresh infusion of capital. While private banks like HDFC and ICICI grow their balance sheets by making profits and retaining them, public sector banks keep turning back to the taxpayer to pay for their inability to make profits. The latest reason for asking for more equity capital is to meet the regulatory requirements for keeping a higher buffer due to international prudential regulations.
The regulatory requirement of holding capital in a higher proportion to the balance sheet could arguably have been met in a number of ways. Banks have known that higher capital requirements were being introduced and had time to prepare for it. One way was through additional equity offerings to the public. This could have been made possible for public sector banks had the government taken a decision to reduce its share below 51 per cent. Instead of going to Parliament to ask for more money to spend in an already bad fiscal situation, the government would have done better to persuade lawmakers to amend the two Bank Nationalisation Acts that Indira Gandhi had sprung on the nation in the heyday of Indian socialism. This might have been a reformist step forward. The model could have been HDFC and ICICI, which moved away from being owned by the government to being widely held by the public.