World Bank preconditions may delay $3.2-bn loan to banks

World Bank preconditions may delay a $3.2-billion loan for recapitalisation of more than a dozen government-owned banks by six to seven months, according to a senior finance ministry official.

The World Bank is understood to have asked the government to reduce its stake in the banks and do away with concessional lending rates for priority sector. It has also sought a road map���a broad business plan���of the banks, which will be recapitalised with this loan.

The government, however, is in no hurry to meet these conditions, and negotiations between both sides are on. ���The pre-conditions are not acceptable. Besides, the capital adequacy ratio of our banks is well above the prescribed norm of 9%,��� said the official, who did not wish to be named.

The loan period is also a sticky issue. ���The World Bank wants to disburse the amount in four tranches, but it���s not such a big amount and can be easily given in two tranches,��� the official said. The government plans to infuse around Rs 16,000 crore in 16 banks by 2011. It is keen on World Bank funds because of the relatively low 3-4% interest; a loan from other sources could take the borrowing cost up to 9%.

There are 25 state-owned banks and the government has already infused Rs 3,800 crore into Uco Bank, Central Bank of India and Vijaya Bank. It now aims to infuse another Rs 1,700 crore into United Bank of India, Dena Bank and Maharashtra Bank. While United Bank of India will be allocated Rs 700 crore, the remaining amount will be distributed between Dena Bank and Maharashtra Bank.