Finmin finalises on Rs 14,000-cr capital infusion in banks

The Finance Ministry today finalised the Rs 14,000-crore capital infusion plan for PSU banks to augment their capital base and promised another tranche in the fourth quarter of the current fiscal.

"Rs 14,000 crore will be allocated today and then of course we will sit down with the RBI and Sebi (to decide) the manner of infusion," Finance Minister P Chidambaram said after meeting the heads of PSU banks here.

He further said capital infusion would be worked in accordance to the provisions of the Banking Regulations Act in a week or so.

The government will infuse capital through preferential mode of allotment.

"Bank can allot preferential capital to the government. There is a provision in the banking laws. We did it last year and we will do it this year also," he added.

The capital infusion will ensure that banks have 8 per cent Tier-1 capital by the end of the current fiscal year.

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

The second round of capital infusion which banks may require for concessional lending for home, auto and consumer durable loans till January may happen during the fourth quarter of the current fiscal by monitoring their performance over the four months.

"Any additional capital which will be required for the concessional lending that they are doing between now and January 31 can be factored in as an additional amount (over and above Rs 14,000 crore)," Chidambaram said.

On possibility of banks raising funds from market, he said, "There is a big difference today between the book value of share and the market price of share. Therefore, how far rights issue will succeed in the case of a bank, it's for the bank's chairperson to take a call. Likewise, QIP also he has to take a call."

Making clear that the government will not dilute its shareholding in public sector banks, the Finance Minister said "whether in addition to what government infuses, a bank wants the QIP route or wants to make a rights issue, it is for banks' chairman to take a call."

Later in the day, Financial Services Secretary Rajiv Takru said banks will be allowed to raise capital from markets in the proportionate amount infused by the government to maintain the governments shareholding.

"Government shareholding will not go down from the current level," Takru said.

To a query on merger of PSU banks, the Finance Minister said: "Who is talking about mergers now...Merger was only in the context of SBI's associate banks' merger with SBI. Even that we have left to SBI. We are not giving any diktat.