As per an estimate, public sector banks would need additional capital of up to Rs.240,000 crore by 2018 to meet the Basel III capital adequacy norms, put in place to guard against a repeat of the situation following the 2008 U.S. financial crisis.

Government is open to dilute its stake in public sector banks to 52 per cent, Finance Minister Arun Jaitley said today and promised more steps to tackle bad loan problems including those involving state power providers. The finance minster said these lenders should be involved in the development agenda of state but their administration has to be guided purely by banking considerations and not for any other collateral considerations.

Referring to the recent meeting held by Prime Minister Narendra Modi in the matter, Jaitley said some important reforms in relation to the states with distressed discoms have been worked out.

In a stern message to the State power utilities, the Finance Minister said that the banks can not be expected to bail out the defaulters.

“The capacity of power generation has hugely improved”.

Efforts are now on to give final shape to the banking bureau where all personnel decisions with regards to the bank can also be professionalised, Jaitley added.

“Those who want to fall outside this reform process will then have to suffer at their own policy levels and it will be advisable to all of them to follow the power ministry’s suggestion so that in the course of next one or two years, the distress of those states can be resolved”, he said.

Speaking here at a banking industry event, Jaitley also said that the brick and mortar branches may probably lose relevance with alternative channels like online coming up. He said much progress had been made in the highway sector and the projects were being implemented without major bottlenecks. Our distribution networks through the national grids have improved, but the final access is by the state discoms and at the level of state discoms reforms have been carried out in very few states.

He added that the government was also getting ready to unveil a draft bankruptcy code, which was a part of the Budget announcement, either at the end of this month or in early October.