By IANS,
New Delhi : The government Friday approved Rs.15,000 crore ($3.34 billion) as capital infusion for public sector banks for the current fiscal and said further assistance for the next fiscal would be decided later in consultation with the banks.
“The union cabinet today (Friday) approved capital funds to the public sector banks (PSBs) during the years 2010-11 and 2011-12 so that they maintain a minimum 8 percent tier I capital to meet the credit requirement of the economy,” a government statement said.
Rs.15,000 crore have been earmarked for the current fiscal and “for the year 2011-12, additional capital requirement, if any, will be worked out in consultation with the PSBs based on their third quarter results of 2010-11”.
Tier I capital is the funds a bank reserves to provide protection against unexpected losses. The government’s move is to ensure that the banking system does not suffer from capital adequacy constraints.
The capital infusion would enhance the lending capacity of the PSBs that are expected to continue meeting credit requirements of the economy in order to maintain and accelerate the economic growth momentum.
“The infusion of Rs.15,000 crore in Tier I Capital Instruments of PSBs would enable them to expand their credit growth by about Rs.1,85,000 crore,” the statement added.
The exact amount, mode of capitalisation and other terms and conditions would be decided in consultation with the banks at the time of infusion.
The funds for the capital infusion exercise have been provided by the World Bank and totals $3.2 billion. Formalities in respect of the first tranche of $2 billion loan have already been completed.