The Telegraph
Friday , January 11 , 2013
Since 1st March, 1999
CIMA Gallary

Cash prop for select PSU banks

New Delhi, Jan. 10: The Union cabinet today approved a proposal to infuse Rs 12,517 crore into 10 public sector banks to help them increase lending activity and meet capital adequacy norms.

“Pursuant to the budget announcement made on March 16, 2012, we are infusing additional capital into public sector banks. We will infuse a sum of Rs 12,517 crore before the end of this fiscal,” finance minister P. Chidambaram said after the cabinet meeting.

The minister, however, did not name the banks and said he would finalise the list, amount of recapitalisation and terms of the funds infusion “in consultation with them”.

North Block officials said the latest round of capital infusion could be expected to bolster the Tier-I capital of public sector banks, including the State Bank of India, Calcutta-based Uco Bank and United Bank of India as well as Indian Overseas Bank, Punjab National Bank, Union Bank, Bank of Maharashtra, and Central Bank of India.

The cabinet has also given an in-principle approval to provide need-based re-capitalisation funds to banks till 2018-19 to ensure compliance with the Basel III capital adequacy norms.

For the current financial year, the government had provided about Rs 15,000 crore in the budget for various public sector banks. The funds would be disbursed before March to these entities.

While the government has cleared Rs 3,004-crore for the State Bank of India this financial year, the Union Bank of India expects funds of about Rs 1,000 crore. Uco Bank has sought Rs 800 crore to fund its growth needs and boost its capital adequacy ratio.

Capital infusion from the government shores up a bank’s equity base to enhance lending to productive sectors such as agriculture and infrastructure. It will also assist banks to implement Basel III guidelines.

To achieve full Basel implementation by 2018, the Reserve Bank of India has estimated that public sector banks will require common equity to the tune of Rs 1.4-1.5 lakh crore on top of internal accruals and Rs 2.65-2.75 lakh crore in the form of non-equity capital.

The government had been infusing funds in public sector banks to strengthen their finances. So far, it injected about Rs 32,000 crore in the previous two financial years.