Govt agrees to infuse Rs 12,517 cr into PSU banks by March

The government on Thursday approved a proposal to inject Rs 12,517 crore in public sector banks to help them enhance the lending activity and meet the capital adequacy norms.

New Delhi: Seeking to enhance lending by banks and help them meet capital adequacy norms, government Thursday approved infusion of Rs 12,517 crore in around 10 state- owned banks over the next three months.

The Cabinet has also given in-principle nod for providing need based re-capitalisation of banks till 2018-19 for ensuring compliance with the Basel III capital adequacy norms.

"Pursuant to the Budget announcement made by the Finance Minister on March 16, 2012, we are infusing additional capital into the public sector banks. We will infuse before the end of this fiscal year a sum of Rs 12,517 crore," Finance Minister P Chidambaram said after the Cabinet meeting here.

"We think about 9-10 banks will get the money...This will enable the banks to maintain the Tier I CRAR (capital to risk-weighted assets ratio) at a comfortable level and will be compliant to stricter capital adequacy norms of Basel III whenever Basel III is implemented," he said.

The name of the banks, the amount for each bank and terms of the conditions will be decided in consultation with them at the time of infusion, the minister added.

The government infused about Rs 20,117 crore in public sector banks during 2010-11, and Rs 12,000 crore in 2011-12.

The cabinet also gave in-principle approval for need- based additional capital infusion in PSBs from 2013-14 to 2018 -19 for ensuring compliance with Basel-III -- global banking norms on capital adequacy to minimise financial risk.

It will cater to the credit needs of productive sectors of the economy as well as help withstand the impact of stress in the economy, Chidambaram said.

This will also support national and international banking operations of PSBs and boost the confidence of investors as well as the market sentiment, he added.

On the need for fund infusion, the Finance Minister said: "If banks have to expand business, capital has to be infused from time to time. In fact, I envisage, with the kind of growth of the banking business, capital has to be infused virtually every year for the next few years.

"We have infused capital in the last two year and we will infuse capital the current year. I expect that we may have to infuse capital in the next few years also because the banks business is growing, lending is growing and lending is possible only when there is capital adequacy."

Capital can only be provided by shareholders, Chidambaram said, adding that the government is the majority shareholder in PSBs and would like to maintain its control and majority shareholding in them.

The Finance Minister said the government is committed to keep all the state-owned banks financially sound and healthy so as to ensure that the growing credit needs of the economy are adequately met.

Implementation of Basel III capital regulations enhances requirement of core equity capital by banks due to higher capital ratios. The Basel III capital ratios will be fully phased in as on March 31, 2018.

"The requirement of core equity will also increase due to increase in Risk Weighted Assets (RWAs) of banks under Basel III, as risk weights in the areas of credit risk including counterparty credit risk, external credit assessments and market risk are higher than those in present regime of Basel II," Chidambaram said.

According to sources, government may infuse Rs 3,000 crore in the country's largest bank SBI.

Union Bank of India is another candidate for capital infusion, they added.

Earlier in November 2012, Chidambaram had said that banks in which capital would be infused include Indian Overseas Bank, Central Bank of India and Bank of Maharashtra.