The Indian stock markets were up 26% in 2012. However, the Indian government has not been able to capitalise on the same. The funds raised from divestments have been below par. It hasn't even scratched the surface of the ambitious targets set for the year. Recently the government has ruled out the possibility of any public sector bank coming up with a public offer in the current fiscal. The government will thus have to deploy its own funds in order to recapitalise these banks through a preferential issue. The finance ministry has stated that its aim is to infuse about Rs 159 bn by March end in order to maintain a 58% stake in state run banks. The banks that urgently require capital include Indian Overseas Bank, Central Bank of India and Bank of India. State Bank of India will also be allotted some funds. Basel III continues to be a hurdle for banks. As per the guidelines Indian banks will have to maintain a common equity ratio of 8% and a total capital ratio of at least 11.5%. The Basel III rules will start getting implemented April 2013 onwards. Since capital is expensive and the government is cash strapped, maybe the finance minister's plan of consolidation in the banking space merits some more thought.