Government to infuse Rs 15,000 crore into PSU banks

The decision to this effect was taken by the Cabinet at its meeting chaired by Prime Minister Manmohan Singh.  This capital infusion has been done so that public sector banks maintain minimum 8 per cent Tier I Capital to meet the credit requirement of the economy.

In view of growing credit requirement of industry and corporate sector with the expansion of the economy, the government had been considering to expand the capital base of public sector banks to enable them to compete with private sector banks in the credit market.   The infusion of Rs 15,000 crore in Tier I capital instruments of public sector banks would enable them to expand their credit growth by about Rs 1,85,000 crore.

The exact amount, the mode of capitalisation and other terms would be decided in consultation with the banks at the time of the infusion. For next financial year 2011-12, additional capital requirements, if any, will be worked out in consultation with the public sector banks based on their third quarter results for the year 2010-11.

This additional availability of credit is likely to benefit employment oriented sectors, especially agriculture, micro and small enterprises and entrepreneurs that in turn would contribute substantially to the growth of the economy, the Cabinet note explained.

A senior official of Department of Financial Services of the Finance Ministry said the government decided to infuse capital in public sector banks in order to ensure that the banking system did not suffer from capital adequacy constraints so as to support credit growth needed to sustain the economic momentum in 2010-11.

The government has negotiated with World Bank for two Banking Sector Support Loans
(BSSL) totaling US$3.2 billion.

Formalities in respect of the first tranche of US$2 billion  loan have already been completed, the official said.