Over the next 2 years, public sector banks will get Rs. 35,000 crores from Center. This measure has been taken in order to meet the credit needs of the economy.
According to the RBI norms, at least 6% Tier I capital must be kept by the banks. The planned capital infusion will let the banks keep an 8% Tier-I capital adequacy ratio (CAR).
A finance ministry official said, the government owned banks will be receiving this infusion after the proposal is approved by the cabinet. The union budget has already proclaimed the recapitalization help to public sector banks valued at Rs. 16,500 crore.
The government review reveals that the total capital prerequisite of public sector banks during the next 2 years is about Rs 38,000 crore. A finance ministry official said, “We’ve already approved a capital support of Rs 4,600 crore to four banks, of which Rs 1,900 crore has already been disbursed”.
The main reason for this capital infusion drive is to prevent the banking system from experiencing problems caused by capital adequacy. Also capital infusion is needed for banks such as Dena Bank, Oriental Bank of Commerce and Andhra Bank which cannot enter the capital market till 2011 as the government stake in these banks is higher than 51%.
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