Govt to allow three PSBs to tap market

NEW DELHI: The government plans to allow three public sector banks ��� United Bank of India, Dena Bank and Bank of Maharashtra ��� to tap markets to boost their capital base so that they can lend more in the credit-starved economy.

The government, however, will first infuse around Rs 1,700 crore in the paid-up equity capital of these banks by the end of this fiscal. A bank���s capacity to lend is linked to its capital base, which denotes its ability to absorb risk.

���Even after this infusion, these banks will need further capital for expansion, and we are currently evaluating all options, including public issues,��� said a finance ministry official, who asked not to be named.

The three public sector banks may also be allowed to raise money through other methods, such as qualified institutional placements, if the market scenario doesn���t improve soon. Earlier, Bank of India had raised Rs 1,360 crore by issuing 3.78 crore shares at a price of Rs 360 per share through QIP in 2007.

The government has already worked out a rough estimate of capital infusion that these three PSBs will need to maintain for their public sector status. While UBI will be allocated Rs 700 crore, the rest Rs 1,000 crore will be distributed between Dena and Bank of Maharashtra.

���The capital will be raised in the tier���I category through various instruments in two tranches. The first capital infusion will happen by the end of this fiscal,��� said another finance ministry official.

Currently, United bank of India (UBI) is wholly owned by the government, while the government holds 76% stake in Maharashtra Bank and 51% in Dena Bank. The government will, however, continue to hold a majority stake in all public sector banks.