Budget 2012: Capital infusion in banks won't be Ad Hoc

NEW DELHI: Putting an end to the ad hoc infusion of funds in state run banks, finance minister Pranab Mukherjee is likely to announce a firm plan for capital support to the funds starved banks in the budget for the next fiscal. Over 20,000 crore will be earmarked for capital infusion in banks within the overall annual plan.

"Capital for recapitalisation of banks would be provided within the plan," a government official told ET.

The annual plan could be pegged at 5.21 lakh crore including the funds for bank recapitalisation, a 17.8% increase over the budget estimates of the current year.

Minus the allocation to banks, the rise in plan expenditure is 13.2%, higher than 11.8% increase in the budget estimate for 2011-12 over the revised estimates of 2010-11.

The increase has been more than that expected given that the finance ministry is under pressure to rein in expenditure to cut fiscal deficit that is expected to breach the budgeted 4.6% of GDP by a large margin.

The government is banking on additional revenues from airwave auction and better disinvestment proceeds in 2012-13 to fund its increased expenditure, the official said.

However, it is very likely that the government may finally not be able to spend the entire 5.21 crore earmarked for plan spending.

In the current year as well, a severe expenditure squeeze has seen the finance ministry spend only 62.7% of the budgeted amount by the end of December against 67% spending by the corresponding time in the year.

Capital needs of public sector banks have been pegged at 3.5 lakh crore over the next ten years.

In the recent years the finance ministry was meeting the capital needs on an ad hoc basis, depending on which bank needed it more.

Finance minister pranab mukherjee had in his budget speech of last February said the government will maintain a 58% stake in state run banks and ensure at least 8% tier one capital ratio.

He had provided 6,000 crore capital support but that amount is likely to increase and reach 14,000 crore.

The government now wants to have a clear road map for capital infusion, which is the reason why bank capitalization has been put under plan spending and a substantial allocation has been made.

The clarity will allow banks to develop their capital plans very early in the financial year.