Cabinet approves capital requirement of public sector banks

New Delhi, Apr 23 (ANI): The Union Cabinet on Friday approved a proposal to provide capital funds to the Public Sector Banks (PSBs) during the years 2010-11 and 2011-12 in order to assist them to maintain a minimum 8 percent Tier I Capital to meet the credit requirement of the economy.

For the year 2010-11, a sum of Rs.15,000 crore is to be infused in Tier I Capital Instruments of the PSBs.

The exact amount, mode of capitalisation and other terms and conditions would be decided in consultation with the banks at the time of infusion.

For the year 2011-12, additional capital requirements, if any, will be worked out in consultation with the PSBs based on their 3rd quarter results for the year 2010-11.

The expenditure involved for the year 2010-11 is Rs. 15,000 crore.

The infusion of Rs.15,000 crore in Tier I Capital Instruments of PSBs would enable them to expand their credit growth by about Rs.1,85,000 crore.

This additional availability of credit is likely to benefit employment oriented sectors, especially agriculture, micro and small enterprises, export, entrepreneurs etc. in promotion of their economic activities which would in turn contribute substantially to the growth of the economy.

The capital infusion would enhance the lending capacity of the PSBs that are expected to continue meeting credit requirements of the economy in order to maintain and accelerate the economic growth momentum.

In the wake of recent global financial crisis, the PSBs have done a commendable job in meeting the credit requirements of the economy.

In order to ensure that the banking system does not suffer from capital adequacy constraints so as to support credit growth needed to sustain the economic momentum in 2010-11, the Government has decided to infuse capital in PSBs.

Government has negotiated with the World Bank for two Banking Sector Support Loans (BSSL) totaling 3.2 billion dollars.

Formalities in respect of the first tranche of 2 billion dollars loan have already been completed.

A sum of Rs.15,000 crore has been provided in the Budget for the year 2010-11.

The amount to be infused during 2011-12 would be worked out in consultation with the PSBs based on their 3rd quarter results for the year 2010-11. (ANI)