India seeks $1 bn WB loan to recapitalise banks

After approving $2-billion grant last year, the World Bank today said it was discussing with India for another $1-billion (about Rs 4,500 crore) credit to help shore up capital of its public sector banks.

"Discussions are going on with the World Bank and the government of India to provide another $1 billion (for bank recapitalisation)," World Bank Country Director for India Roberto Zagha said in New Delhi.

The Washington-based lender has already loaned $2 billion to India under Banking Sector Support Loan to help select public sector banks expand credit for infrastructure development and growth of small and medium enterprises, and the rural economy.

Zagha said the discussions for new credit line had just started and it was difficult to say if it could be given to India in the coming fiscal year beginning July 2010.

The executive board of the World Bank had last year approved $2 billion (about Rs 9,000 crore) loan with 30 year maturity to help enhance banks' capital.

Following this the government has made capital infusion in many public sector banks to increase Tier I (equity) capital above 8 per cent.

"For the year 2010-11, it is proposed to provide a sum of Rs 16,500 crore to ensure that the public sector banks are able to attain a minimum 8 per cent tier-I capital by March 31, 2011," the Finance Minister Pranab Mukherjee said in his Budget speech this year.

The government infused Rs 1,500 crore in four banks in May, 2010 and Rs 1,200 crore in April 2010. Moreover, earlier this month, the government announced infusion of Rs 6,211 crore into five public sector banks, a move that will help lend an additional Rs 77,637 crore to various sectors of the economy.

The banks including IDBI Bank, Central Bank of India, Bank of Maharashtra, UCO Bank and Union Bank of India will get Rs 3,119 crore, Rs 2,016 crore, Rs 590 crore, Rs 375 crore and Rs 111 crore, respectively.

The government's total capital support during the current financial has gone up to Rs 8,911 crore.