The Union Cabinet, on Thursday, approved infusion of Rs.12,517 crore in about 10 public sector banks (PSBs) during the current fiscal to enhance their lending capabilities and also help them in meeting the stricter capital adequacy norms under Basel-III.

Alongside, the Cabinet, at its meeting chaired by Prime Minister Manmohan Singh, also gave an in-principle nod for providing need-based recapitalisation of banks till 2018-19 for ensuring compliance with the Basel-III capital adequacy norms.

Briefing reporters after the Cabinet meeting, Finance Minister P. Chidambaram said: “Pursuant to the budget announcement made by the Finance Minister on March 16, 2012, we are infusing additional capital into the public sector banks. We will infuse before the end of this fiscal year a sum of Rs.12,517 crore”.

Tier-I CRAR

“We think about 9-10 banks will get the money...this will enable the banks to maintain the Tier-I CRAR [capital to risk-weighted assets ratio] at a comfortable level and will be compliant to stricter capital adequacy norms of Basel-III, whenever Basel-III is implemented,” he said.

Mr. Chidambaram noted that the name of the banks, the exact amount, and the mode of recapitalisation for each bank and other terms and conditions would be decided in consultation with them at the time of infusion.

To comply with the capital adequacy norms in the previous years also, the government had infused about Rs.20,117 crore in PSBs during 2010-11 and injected another Rs.12,000 crore in 2011-12.

Accordingly, to keep pace with the capital requirements in the coming years, the Cabinet gave an in-principle approval for need-based additional capital infusion in banks from 2013-14 to 2018 -19 to ensure compliance with Basel-III global banking norms aimed at minimising financial risks.

Explaining the periodic need for such capital infusion, Mr. Chidambaram said: “If banks have to expand business, capital has to be infused from time to time. In fact, I envisage, with the kind of growth of the banking business, capital has to be infused virtually every year for the next few years.

Growing business

“We have infused capital in the last two years, and we will infuse capital in the current year. I expect that we may have to infuse capital in the next few years also because the banks’ business is growing, lending is growing and lending is possible only when there is capital adequacy,” he said.

The Finance Minister went on to point out that since capital could only be provided by shareholders, the government, being the majority shareholder in PSBs, would like to maintain its control and majority shareholding in them. The government, he said, was committed to keep all the State-owned banks financially sound and healthy so as to ensure that the growing credit needs of the economy were adequately met.

An official statement on recapitalisation of PSBs said that implementation of Basel-III capital regulations enhances requirement of core equity capital by banks due to higher capital ratios. The Basel-III capital ratios will be fully phased in as on March 31, 2018.

“The requirement of core equity will also increase due to increase in risk weighted assets (RWAs) of banks under Basel-III, as risk weights in the areas of credit risk, including counter-party credit risk, external credit assessments and market risk are higher than those in the present regime of Basel-II,” it said.

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