India to inject $1.34bn into PSU banks

The government’s move targeted to improve Tier-I capital to 8% and to escalate growth of state-owned banks.

The government would provide an additional Rs 6,000 crore ($1.34 billion) capital to state-owned banks in financial year 2011-12 to help them maintain at least eight per cent capital adequacy ratio in Tier-I level, Finance Minister Pranab Mukherjee said on Monday while presenting the Union Budget for 2011-12 (April-March) at the lower house of the Parliament.

“Banks will need additional capital as they continue to grow their balance sheet. The capital support plan announced on Monday will help banks meet the rising credit demand,” M Narendra, chairman and managing director of Indian Overseas Bank, told Business Standard.

The Chennai-based lender expects to get Rs 1,054 crore ($235.21 million) capital from the government, which will improve its Tier-I capital adequacy ratio to over eight per cent. Indian Overseas Bank’s Tier-I capital adequacy ratio stands at 7.58 per cent.

“I don’t think we are in the list (of banks) that will get capital next year. As we continue to grow our business, we will need more capital. But we have not asked for more funds at this point in time,” said Narendra.

In the current financial year, the government has provided Rs 20,157 crore ($4.5 billion) capital infusion for state-owned banks. The move has helped the government to increase its stake to 58 per cent in a few banks, besides strengthening the lenders’ capital base.

In June 2010, the government had provided Rs 6,211 crore ($1.39 billion) capital in five state-owned banks — Bank of Maharashtra, Central Bank of India, IDBI Bank, UCO Bank and the Union Bank of India.

View the full story in Business Standard.