Financial Sector (including Banks) Reforms at country-level and Introduction of Basel-1 & 2 norms at global level happened almost simultaneously. All the ills of inefficient working of banks during eighties (loan melas, poor customer care, limited product range, regulated interest rates, unproductive branch expansion, trade unionism, absence of mechanisation/computerisation, lack of Risk / Asset Liability Management mechanisms, low or no competition or level playing field, etc) exposed the banking system to its heights. Capital was never considered a measure or yard-stick or parameter to judge their performance as paper-dividends were declared due to interest being calculated on even bad and doubtful debts (now called NPAs) irrationally.
Capital Adequacy Norms necessatated almost all the banks, in particular PSBs either from the Govt funds or by going public in order to meet the global standard of at least 8% CAR; with India choosing at 9%. Some how over a decade's time, all the banks have met the requirement including through infusion of funds from Govt sources. Come Basel 2 norms, it has become essential for these banks to scale the CAR to at least 12%. In the process it has become an annual affair that GOI has been pumping capital for the last three years. In the recent budget too, the FM proposed to add Rs. 16,500 crores into capital of PSBs. Instead, these banks should tighten their belts and improve their working; prune down their NPAs so that when they approach capital market, the investing public will judge their efficiency and subscribe to the issues.