Cabinet approves Rs 12,517 crore bank recapitalisation plan

NEW DELHI: The government today approved a proposal to inject Rs 12,517 crore in public sector banks to help them enhance the lending activity and meet the capital adequacy norms.

About 9-10 public sector banks will benefit from the capital infusion programme, Finance Minister P Chidambaram told reporters after the meeting of the Cabinet.

The amount of capital infusion and the terms and conditions would be decided after consultation with each bank, he said, adding that the exercise was aimed at helping them meet stricter Basel-III norms relating to capital adequacy.

The funds would be disbursed before March to these public sector banks. The government had already earmarked the amount in the Budget for the current fiscal.

The government has been infusing funds in the public sector banks in the last couple of years to strengthen their finances.

It has injected about Rs 32,000 crore in the previous two financial years.

During 2011-12, public sector banks got Rs 12,000 crore for improving their capital adequacy ratio.

The government pumped in Rs 20,157 crore in public sector banks in 2010-11 to maintain tier I capital at 8 per cent and increase government's equity in some banks to 58 per cent.

Capital infusion is based on an assessment made by the Finance Ministry about the capital needs of public sector banks for meeting Basel III norms, to be complied with in a phased manner, ending by March 2018.

In order to strengthen risk management mechanism, the Reserve Bank issued guidelines for Basel III last year.

The implementation of the capital adequacy guidelines based on the Basel III capital regulations was to begin from January 1, 2013. However, RBI recently deferred it by another three months.