The Union Cabinet on Thursday approved infusion of capital worth R12,517 crore in around 10 public sector banks (PSBs), including the country?s largest lender SBI.
This is to help these banks comply with the capital adequacy norms, in addition to aiding them in catering to the credit needs of different sectors of the economy and ensuring that they are able to withstand the impact of stress in the economy.
However, the exact amount, mode of recapitalisation and other terms and conditions in each PSB would be decided in consultation with them at the time of infusion, finance minister P Chidambaram told reporters.
It has been decided that the entire amount (out of the total R15,888 crore earmarked in the 2012-13 Budget) will be disbursed by March-end, he said.
Along with SBI, Indian Overseas Bank, United Bank of India, Central Bank of India, UCO Bank and Bank of Maharashtra are also in the recapitalisation process.
The capital will not only help the government maintain its current shareholdings in these banks, but will also help the banks to maintain their Tier-l Capital to Risk (Weighted) Assets Ratio (CRAR) at a comfortable level so that they remain compliant with the stricter capital adequacy norms under Basel-III.
It will also support internationally active PSBs for their national and international banking operations undertaken through their subsidiaries and associates.
Significantly, the Cabinet also gave ?in principle? approval for need-based additional capital infusion in PSBs from 2013-14 to 2018-19 to ensure compliance to capital adequacy norms under Basel-III.
This was because under the prevailing norms, Cabinet approval is required for investments of over R300 crore in a public sector company. In the capital infusion process, the government investment in each of these PSBs will be over R300 crore.
Therefore, the department of financial services wanted a one-time Cabinet nod to ensure that they do not have to return to the cabinet till 2018-19 for capital infusion in each PSB.
The government had infused in PSBs capital worth R20,117 crore in 2010-11 and R12,000 crore in 2011-12 to improve their CRAR and to maintain its share-holding at around 58-59%. The implementation of Basel III Capital Regulations will be carried out in phases till 2018.
