The Cabinet has approved the infusion of Rs 3,800-crore to strengthen the balance-sheets of three public sector banks -- UCO Bank, Central Bank of India and Vijaya Bank. The fund would help these banks to shore up their capital adequacy ratio (CAR).
Of the total amount, Rs 1400 crore would go to Central Bank of India, while UCO Bank and Vijaya Bank will get Rs 1,200 crore each.
Briefing reporters here after a cabinet meeting, home minister P Chidambaram said that the capital infusion would be done in two tranches. While the first tranche would be made available in the current fiscal year, the remaining will be given in the next fiscal.
UCO Bank will get Rs 450 crore, while Central Bank of India and Vijaya Bank will get Rs 700 and Rs 500 crore, respectively, in the first tranche.
Chidambaram added that the move would enable banks raise their CAR over the 12 per cent mark, which is well above the Basel II norms which mandates banks to have a capital adequacy of 9 per cent. Chidambaram added that the infusion of funds would be a part of Tier I capital. The government holding in these three banks would also increase.
The state holds 80.20 per cent in Central Bank of India, 75.98 per cent in UCO and 53.87 per cent in Vijaya Bank.
Chidambaram also said that tapping the capital market to raise funds is not a viable option at this stage. Banks are allowed to raise capital as equity and innovative instruments such as perpetual non-cumulative preference shares and perpetual bonds under the Tier I category.