The government is all set to provide Rs 18,000 crore for recapitalisation of state-owned banks. An announcement to this effect would be made in the interim budget.
The move would further strengthen the public sector banks allowing them to lend more freely. Most banks, barring the State Bank of India, would get a share of the kitty.
Some of the big banks would also benefit from the package, an official source said.
Three public sector banks —UCO Bank, Central Bank of India and Vijaya Bank — have already received the first shot with the Cabinet approving infusion of Rs 3,800 crore into these banks.
The fund would help these banks to shore up their capital adequacy ratio, which is an indication of a bank’s capital as a percentage of its risk weighted credit exposures.
In addition, the move would also help these banks adhere to the stringent Basel II norms. Size, financial status and the government shareholding pattern of banks will decide on the final quantum of share, which would be decided later.
Though all public sector banks have a capital adequacy ratio (CAR) of above the stipulated 9 per cent level, adoption of Basel II norms could pull down their CAR by about 3 per cent. This means that banks would be required to have a minimum CAR of 12 per cent.