Cabinet clears Rs 3,800-crore infusion in banks

The Cabinet has approved the recapitalisation of three banks by way of which the government will infuse capital to the tune of Rs 3,800 crore.

Written by ENS Economic Bureau | Mumbai | Published: February 12, 2009 12:21:41 am

The Cabinet has approved the recapitalisation of three banks by way of which the government will infuse capital to the tune of Rs 3,800 crore. Even as over ten banks had been short listed for recapitalisation the three selected in the first round include UCO Bank,Central Bank of India and Vijaya Bank. The move will help the three banks maintain comfortable level of capital to risk weighted assets ratio (CRAR) in line with Reserve Bank of India guidelines.

The Cabinet has approved the infusion of Rs 1,400 crore capital into Central Bank of India,Rs 1,200 crore in UCO Bank and another Rs 1,200 crore in Vijaya Bank. As per the recapitalisation plan,the government will subscribe to Tier-I innovative capital instruments,which the banks will float in two tranches. The first tranche is expected to be of the order of Rs1,650 crore and will be floated by the end of this fiscal.

Earlier,finance ministry officials had indicated the government’s plan to spend over Rs 5,000 crore for recapitalisation of banks in the coming fiscal. The decision was expected to be announced in the interim budget.

However,the government has taken the decision almost a week ahead of the Budget announcements indicating its commitment to push key policy reforms in a fast track mode. The Indian Express had reported that the finance ministry plans to recapitalise three banks including UCO Bank and the Central Bank,while a decision on the third was awaited.

At the end of fiscal 2008,UCO Bank’s capital adequacy ratio (CAR) stood at 10.09% while government holding in the bank is 75%. Similarly,the CAR of Central Bank of India was at 10.82% but the government holding is high at 80%. The government had announced on January 2,2009 that it plans to recapitalise by infusing as much as Rs 20,000 crore over the next two years.

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