Rs 12,517-cr cap infusion plan for PSBs cleared
Govt agrees to 10% stake sale in EIL
About 10 banks are expected to benefit from the move, Union Finance Minister P Chidambaram said after the cabinet meeting.
However, the amount of capital infusion to each bank and the terms and conditions will be decided after consultation with the banks. The exercise is aimed at helping the banks meet Basel-III norms.
PSBs are plagued by rising non-performing assets (NPA) and write-offs.
Chidambaram said the combined injection of capital would not exceed the Rs 15,000 crore provisioned in the budget for the fiscal year ending 2013. Banks like Union Bank of India are seeking for Rs 1,500 crore recapitalisation.
An official statement issued on the Cabinet Committee on Economic Affairs’ decision, said that the infusion will ensure compliance to the regulatory norms on capital adequacy and will cater to the credit needs of productive sectors of the economy as well as withstand the impact of stress in the economy.
“This will also support national and international banking operations of public sector banks (PSBs) and will boost the confidence of investors and market sentiments,” the statement said.
The infusion of Rs. 12,517 crore in the equity capital of PSBs will enable them to drive credit growth. This additional availability of credit will cater to the credit needs of our economy and will also benefit employment oriented sectors, especially agriculture, micro & small enterprises and entrepreneurs in promotion of their economic activities which, in turn, can contribute substantially to the growth of the economy.
The government is committed to keep all the public sector banks financially sound and healthy so as to ensure that the growing credit needs of our economy are adequately met. To meet the credit requirement of the economy, banks would require capital funds commensurate to the increase in their Risk Weighted Assets,” it said.
Implementation of Basel III capital regulations enhances requirement of core equity capital by banks due to higher capital ratios. The Basel III capital ratios will be fully phased in as on March 31 2018, the statement said.
The BSE Bankex closed at 14,699.60, 91 points higher from its previous close.
The CCEA also cleared 10 per cent disinvestment in Engineers India . The government currently holds 80.50 per cent stake in EIL. This divestment is part of government aim to raise Rs 30,000 crore from share sales in state-run companies in fiscal year 2013.
Thus far, the government has managed to garner just under 25 per cent of that target.
The share price of EIL closed at Rs 228.90 on the Bombay Stock Exchange on Thursday, down 4.11 per cent from its previous close.