The Cabinet on Thursday approved a move to use part of the money raised by selling stakes in state-owned companies to bolster the capital base of public sector banks and insurance companies.
The government plans to infuse close to Rs. 17,000 crore in state-owned banks in 2013-14
The government will infuse more capital to ensure that their capital reserves do not remain uncomfortably close to the minimum stipulated levels over a long period of time.
The capital support is aimed at strengthening the tier I or equity capital of banks. According to regulatory requirements, banks are required to maintain a minimum of 8% tier-I capital, which broadly refers to shareholder equity.
Under the new norms that will come into effect from 2013-14, the money will be used for subscribing to rights issues of public sector banks and insurance companies, preferential allotment of such companies and recapitalisation of banks.
“Fund managers presently managing the NIF will stand discharged of their responsibility from the date the funds and the interest income are transferred to the fund,” an official statement said.