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Banks (Finance)

Government to Infuse Rs 16,500 Crore in Public Sector Banks

Strategic Insights

— 1 min read

The Indian government has announced plans to infuse Rs 16,500 crore into public sector banks to ensure they meet the minimum Tier-I capital adequacy ratio of 8 per cent by March 2011. The World Bank has agreed to provide a $2-billion loan for re-capitalizing government-owned banks. The government's stake in six public sector banks is less than 55 per cent, and those with a stake close to 51 per cent will be the primary beneficiaries of the fund infusion.

Key Takeaways:

  • The government will infuse Rs 16,500 crore into public sector banks to meet the minimum Tier-I capital adequacy ratio of 8 per cent by March 2011.
  • Rs 15,000 crore of the infusion will come from the World Bank, with a $2-billion loan for re-capitalizing government-owned banks.
  • At least four public sector banks - UCO Bank, IDBI Bank, Bank of Maharashtra, and Central Bank of India - had a Tier-I capital less than 8 per cent as of December 31.
  • Some banks, including Bank of Baroda, Oriental Bank of Commerce, and Dena Bank, have asked the government to subscribe to their shares on a preferential basis to increase its stake.
  • State Bank of India plans to raise Rs 10,000-20,000 crore in 2010-11 through a rights issue, while Union Bank of India plans to raise around Rs 2,000 crore through a similar issue.

Statistics:

  • Rs 16,500 crore: The amount of funds to be infused into public sector banks.
  • Rs 15,000 crore: The amount of funds to be provided by the World Bank.
  • $2 billion: The value of the World Bank's loan for re-capitalizing government-owned banks.
  • 8 %: The minimum Tier-I capital adequacy ratio to be met by March 2011.
  • 9 %: The minimum capital adequacy ratio for banks as per RBI's norms.
  • 6 %: The minimum Tier-I capital required for banks as per RBI's norms.
  • 55 %: The maximum shareholding of the government in six public sector banks.
  • 51 %: The shareholding threshold for banks to benefit from the fund infusion.
  • 10,000-20,000 crore: The amount of funds to be raised by State Bank of India through a rights issue in 2010-11.
  • 2,000 crore: The amount of funds to be raised by Union Bank of India through a rights issue.

Sources:

  • Euclid Infotech Pvt. Ltd.
  • Syndigate.info
  • Albawaba.com

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