Govt ready to infuse more capital in Central Bank of India: FM

Finance minister P Chidambaram said on Wednesday the government was willing to infuse capital into Central Bank of India, if required. He was speaking after meeting the banks board of directors here. The bank has a capital adequacy ratio of 10.42%. The government will be willing to help the bank, with additional capital, if it requires, just as we did for SBI. It will not be a problem for the government, if the bank can service this capital, Mr Chidambaram said. The bank has not been able to utilise its resources effectively, not able to raise its capital adequacy. Only the top line is growing, the bottom line is not, he added. Although the banks CMD H A Daruwalla said while it was yet to approach the government for capital, she would examine the banks capital requirement after the first quarter of this fiscal. Ms Daruwalla said: We have to examine our capital requirement. As a part of compliance for accounting standard AS15, Rs 875 crore has been provided for from the tier I capital. As a result of this, the gap for tier II capital has reduced. The CRAR for the bank stands at 10.42% and its expected to be 10.78% by the end of the fiscal. Tier II capital should be half of tier 1 capital. There are several ways of accessing capital, including hybrid instruments to raise tier II capital, subordinated debt. We will examine the least expensive way to raise capital, she said. Last fiscal, the bank had its initial public offer, after its capital base was restructured. The bank should also account for operational risk in view of the implementation of the Basel II norms by March 2009. The bank is expected to open 200 branches, which will add Rs 1,000 crore of business. By December 2010, the bank will be in the 100th year of operation. Over 80 branches will be opened in the next two months. The bank needs to resolve issues related to labour and human resources, she said. Ms Daruwalla said that the banks cost-to-income ratio is high. The bank has just started implementing core banking solution (CBS) across its branches. Its cost of deposits has gone up putting pressure on the net interest margin. With inflation inching closer to 9%, Finance Minister P Chidambaram on Wednesday said the rate of price rise is high, prompting RBI to tighten money supply. Inflation is high. RBI must take steps and it has taken, Chidambaram told reporters after his meeting with top officials of the Central Bank of India. The Reserve Bank of India hiked the repo rate or the short-term lending rate by 0.25% to 8% putting pressure on interest rates. Already, the prime lending rates for most banks are pegged at around 13%. Besides raising the short-term lending rate (repo rate), RBI had also sucked over Rs 27,000 crore out of the economy by increasing the Cash Reserve Ratio by 0.75% in three phases. Inflation has touched 8.75% for the week ended May 31. It is set to cross the 9% mark when the official data is released on June 20, which reflect the impact of hike in fuel prices. The previous high in the UPA regime was 8.33%, as per the provisional figure for the week ended August 28, 2004. – www.economictimes.indiatimes.com