The government, on Thursday, approved conversion of perpetual non-cumulative preference shares (PNCPS) of three public sector banks into equity, a move that would raise its holding in these lenders.
This would apply to three banks: Indian Bank, UCO Banks Vijaya Bank, Finance Minister P. Chidambaram said after the Cabinet meeting here.
“The government holding in these three banks will increase and the government’s share of dividend will also increase, and we will be fully compliant with Basel III guidelines as this can be counted as Tier I capital,” he said.
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Following the conversion, the government holding in Indian Bank would go up to 82.22 per cent from the existing 80 per cent, he said.
In case of UCO Bank, it would be 77.25 per cent from 69.26 per cent, while Vijaya Bank, it would be 71.85 per cent from the existing 55.02 per cent, he added.
The Cabinet gave its approval for conversion in Indian Bank, UCO Bank and Vijaya Bank amounting to Rs.400 crore, Rs.1,823 crore and Rs.1,200 crore, respectively, into equity shares of these banks in favour of the government, subject to approval of shareholders and also the Securities and Exchange Board of India (SEBI) and other authorities, he said. Conversion of PNCPS, subscribed by the government in these banks, into equity in the first instance and subsequently in other public sector banks where it has invested in PNCPS, PCPS and IDPIs, would enhance the Tier-1 capital of the state-owned banks, thereby, making available more funds at their disposal to meet the credit requirement of the productive sectors of economy, he said.
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It would also provide impetus to the economy by including the under-banked rural and semi-urban areas, he said. After the request of conversion from these banks, the RBI’s views were sought.
After implementation of Basel-Ill norms, the thrust has been on equity capital in Tier- I capital of banks. — PTI