Govt to infuse Rs 1,400 crore into 3 public sector banks
The government on Wednesday approved the recapitalisation of three public sector banks (PSBs), Uco Bank, Vijaya Bank and Central Bank of India, by infusing Rs 3,800 crore.
By ET Bureau |
NEW DELHI/KOLKATA/BANGALORE: The government on Wednesday approved the recapitalisation of three public sector banks (PSBs), Uco Bank, Vijaya Bank and Central Bank of India, by infusing Rs 3,800 crore. Under the approved recapitalisation plan, the government would infuse Rs 1,400 crore into the Central Bank of India while Vijaya Bank and Uco Bank would get Rs 1,200 crore each, home minister P Chidambaram told reporters after the Cabinet meeting here.
The fund infusion would increase the banks��� capital adequacy ratio (CAR) to more than the desired level of 12%. CAR, or capital-to-risk weighted asset ratio (CRAR), is linked to the lending of banks. A higher CAR means the bank is in a good health and can lend more. The three banks had a CRAR of less than 12% as on June 30. However, none of them had a CRAR ratio of less than 9%, the prescribed limit under Basel-II norms.
The government will be subscribing to the tier-I innovative capital instruments which banks will float in two tranches. Uco Bank will get Rs 450 crore while Central Bank of India and Vijaya Bank will get Rs 700 crore and Rs 500 crore, respectively, in the current fiscal. The government will infuse capital into Uco Bank by subscribing to its non-convertible preference shares, which qualify for tier-I capital. The bank will pay 6.5% interest per annum to the government on the instrument.
Reacting to the news, Uco Bank chairman and managing director SK Goel told ET that its capital adequacy would now improve to above 12% from 10.68% as on December 31, 2008. The tier-I capital, which is the core capital for banks, will improve to above 6% from 5.44% now.
���The government will provide Rs 450 crore in February itself. The remaining Rs 750 crore will be infused around June-July 2009,��� Mr Goel indicated. Improvement in the tier-I capital means Uco Bank would get an additional headroom of Rs 1,200 crore by selling bonds. ���This will provide us cushion to increase capital in future by way of tier-II bonds,��� Mr Goel said.
Vijaya Bank���s CMD Albert Tauro said, ���The Union government is holding 53.87% and there is little room for further dilution. So this (infusion) would either be in the form of preference shares or a perpetual debt instrument so that the government holding remains intact,��� Mr Tauro added.
The fund infusion would increase the banks��� capital adequacy ratio (CAR) to more than the desired level of 12%. CAR, or capital-to-risk weighted asset ratio (CRAR), is linked to the lending of banks. A higher CAR means the bank is in a good health and can lend more. The three banks had a CRAR of less than 12% as on June 30. However, none of them had a CRAR ratio of less than 9%, the prescribed limit under Basel-II norms.
The government will be subscribing to the tier-I innovative capital instruments which banks will float in two tranches. Uco Bank will get Rs 450 crore while Central Bank of India and Vijaya Bank will get Rs 700 crore and Rs 500 crore, respectively, in the current fiscal. The government will infuse capital into Uco Bank by subscribing to its non-convertible preference shares, which qualify for tier-I capital. The bank will pay 6.5% interest per annum to the government on the instrument.
Reacting to the news, Uco Bank chairman and managing director SK Goel told ET that its capital adequacy would now improve to above 12% from 10.68% as on December 31, 2008. The tier-I capital, which is the core capital for banks, will improve to above 6% from 5.44% now.
���The government will provide Rs 450 crore in February itself. The remaining Rs 750 crore will be infused around June-July 2009,��� Mr Goel indicated. Improvement in the tier-I capital means Uco Bank would get an additional headroom of Rs 1,200 crore by selling bonds. ���This will provide us cushion to increase capital in future by way of tier-II bonds,��� Mr Goel said.
Vijaya Bank���s CMD Albert Tauro said, ���The Union government is holding 53.87% and there is little room for further dilution. So this (infusion) would either be in the form of preference shares or a perpetual debt instrument so that the government holding remains intact,��� Mr Tauro added.
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