Three banks get Rs 3,800 cr capital infusion
Uco, Vijaya, Central Bank of India will see CAR rise above 12%.
The government will infuse about Rs 3,800 crore in three public sector banks —Central Bank of India, Uco Bank and Vijaya Bank — to help these banks maintain a comfortable capital adequacy ratio (CAR) of more than 12 per cent to support credit deployment to productive sectors.
Mumbai-based Central bank of India will receive Rs 1,400 crore, while Uco Bank and Bangalore-based Vijaya Bank will see an injection of Rs 1,200 crore each. The capital infusion will be done in two phases.
The first tranche will be released by March 2009 and is expected to be of the order of Rs 1,650 crore. While Uco Bank will receive Rs 450 crore in the current financial year, Central Bank of India and Vijaya Bank will get a capital infusion of Rs 700 crore and Rs 500 crore, respectively.
| RESTARTING GROWTH | |||
| CAR (%) | Fresh Capital (Rs crore) | ||
| Mar ‘08 | Dec ‘08 | ||
| Central Bank | 10.42 | 10.02 | 1400 |
| UCO Bank | 10.09 | 12.53 | 1200 |
| Vijaya Bank | 1122% | 1140 | 1200 |
| CAR: Capital Adequacy Ratio | |||
In line with the Cabinet’s decision, the three banks will float tier-I instruments, which will be subscribed to by the government. The government had announced its intention to recapitalise banks by pumping in Rs 20,000 crore into state-owned banks by March 2010.
At a time when banks globally are receiving capital from their respective governments to tide over the financial crisis, Union Home Minister P Chidambaram said the decision was an ongoing process outlined in the 2008-09 Budget, which he presented last February.
However, unlike, international banking majors, Indian banks are not facing write-downs and are adequately capitalised. With fresh capital, the government holding in these banks will increase and help them raise tier-II capital as well as opening up avenues of follow-on issues. The law bars the government from reducing its stake below 51 per cent.
At present, the government holding in Uco Bank is 74.98 per cent, while it is 80.2 per cent and 53.87 per cent in Central Bank and Vijaya, Chidambaram said.
Vijaya Bank Chairman and Managing Director Albert Tauro said the bank’s CAR at the end of December 2008 was 11.41 per cent with tier-I of 6.16 per cent. After capital infusion, CAR will be above 12 per cent by March 2009. The capital injection is expected to support 25 per cent year-on-year growth in assets till March 2011, he added.
Central Bank of India Executive Director Pradeep Madhav said the fresh capital will give the bank room to grow its assets over the medium term. The bank will the raise additional capital through tier-I and -II bonds. “Recently, we raised Rs 270 crore through lower tier-II bonds and we are in the process of raising Rs 283 crore by issuing upper tier-II bonds. This should also help to improve capital adequacy,” another bank executive said. Central Bank’s CAR stood at 10.02 per cent as on December 2008. Its tier-I capital as per cent of risk weighted assets was 5.35 per cent.
Uco Bank Chairman and Managing Director SK Goel said, “With this Rs 450 crore our CAR would go up to 12.40 per cent from 11.62 per cent as on December 31. The capital will not change the government’s shareholding as it would be in the form of preferential capital.”