Govt banks get Rs 16,500 cr capital boost

Of this, Rs 15,000 crore will come from the World Bank.

The government today said it would infuse Rs 16,500 crore into public sector banks to ensure that they had a minimum Tier-I capital adequacy ratio of 8 per cent by March 2011.

Out of the Rs 16,500 crore, Rs 15,000 will come from the World Bank. The World Bank has agreed to give a $2-billion loan for re-capitalising government-owned banks.

As on December 31, at least four banks’ Tier-I capital was less than 8 per cent. These are UCO Bank (6.5 per cent), IDBI Bank (6.6 per cent), Bank of Maharashtra and Central Bank of India (7.14 per cent).

Some more banks may fall below the 8 per cent level by the end of March as loan growth, muted for the first nine months of 2009-10, has picked up in the fourth quarter.

According to the Reserve Bank of India’s norms, the minimum capital adequacy ratio for banks is 9 per cent, with Tier-I capital of at least 6 per cent.

“Capital infusion is very much required. This will help banks expand their loan books. We have also sought Rs 1,000 crore capital from the government,” said SK Goel, chairman and managing director of UCO Bank.

Bank of Maharashtra, which has sought Rs 1,800 crore from the government, says it needs the funds to boost its Tier-I capital. “We have applied to the government for capital infusion of Rs 1,800 crore,” said Allen Pereira, chairman and managing director of Bank of Maharashtra.

UCO Bank and Bank of Maharashtra said they preferred capital infusion through perpetual non-cumulative preference shares.

Last year, the government had sought details of growth plans and capital requirements from public sector banks for the next five years. Almost all the banks said they would need capital from the government. State Bank of India said it would raise Rs 10,000-20,000 crore in 2010-11 through a rights issue. Union Bank of India also plans to raise around Rs 2,000 crore through a rights issue.

The banks that will benefit from the fund infusion are those in which the government’s share is close to 51 per cent. The government’s stake is less than 55 per cent in six public sector banks. It holds between 55 per cent and 60 per cent in another six banks.

Some banks, such as Bank of Baroda, Oriental Bank of Commerce and Dena Bank, have asked the government to subscribe to their shares on a preferential basis so that its holding rises after the capital infusion.

In the Budget, the government said it would contribute Rs 625 crore to the securities redemption fund to redeem the securities issued against subscription in SBI’s rights issue. In 2008, the government has subscribed to the issue by issuing bonds worth Rs 10,000 crore to retain its stake in the bank.