Govt to recapitalise public sector banks

Pledging a Rs 20,000 crore recapitalisation package for public sector banks in the next two years, the government today said the credit target of the banks are being revised upward to prop up economy.

"Credit targets of public sector banks are being revised upward to reflect the needs of the economy in the present difficult situation," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters after unveiling the second stimulus package here.

The government will closely monitor the provision of sectoral credit by banks on a fortnightly basis.

The demand for credit had slowed down in October and November but it picked up in December last year, a finance ministry official said.

To ensure that the banking system will not suffer from capital adequacy constraints, the government has drawn Rs 20,000 crore recapitalisation plan for the next two years.

The plan, which will be implemented next year, provide credit growth needed to sustain the economic momentum in 2009-10, Ahluwalia said.

At present, most of the public sector banks have adequate capital back up to expand credit growth. However, there are a few PSU banks which may required additional capital.

"Banks, which have CRAR of below 12 per cent, well above 8 per cent Basel norm, well above 9 per cent RBI stipulated norm... We will help them recapitalise and bring them (CRAR) above 12 per cent," the then Finance Minister P Chidambaram had told Rajya Sabha.

Capital to risk (weighted) Asset Ratio (CRAR) is the ratio of capital and assets which banks are required to maintain against risks. The ratio reflects the financial strength of a bank and its ability to take risk.