Rs 20,000 crore boost for public sector banks

The government today said it would take up the recapitalisation of around half-a-dozen public sector banks during the next financial year. This would be followed by more banks in 2010-11. The combined cost of recapitalisation is expected to be around Rs 20,000 crore, according to the finance ministry.

The ministry has already asked all public sector banks to assess their capital requirement for the next two years and explain how they intend to raise funds.

While the government had earlier said that it would provide more capital to seven banks that had a capital adequacy ratio of under 12 per cent, Finance Secretary Arun Ramanathan told reporters the restrucuting of Punjab & Sind Bank and Uco Bank had already been completed. By March, the government hopes to complete the capital restructuring exercise for Dena Bank, United Bank of India and Central Bank of India, according to him.

Bank of Maharashtra and Vijaya Bank are the other two lenders with a capital adequacy ratio of under 12 per cent though they are well above the 9 per cent mark mandated by the Reserve Bank of India. Vijaya Bank has already put forward a proposal for Rs 1,800 crore support from the government.

“This (recapitalisation) will help ensure that the banking system does not suffer from capital adequacy constraints in order to provide the credit growth needed to sustain the economic momentum in 2009-10,” the ministry said in a statement.

The government has in the past issued recapitalisation bonds to help state-owned players shore up their capital base. Between 1985-86 and 2000-01, the government issued bonds worth Rs 20,446 crore.

Subsequently, banks have set aside losses against the capital. Then, the government decided to subscribe to the rights issues of banks to help them increase their capital base without diluting the Centre’s stake. In March, it issued bonds worth Rs 10,000 crore as its contribution to the SBI’s rights issue.