New Delhi: The government will infuse Rs3,800 crore into three state-run banks by the end of March 2010, a minister said Wednesday, helping their shares extend gains in a market that ended almost unchanged.
Indian banks have been unable to raise fresh equity after the global financial crisis roiled Indian markets, but they have to adhere to the central bank’s capital adequacy rules and meet rising demand for loans needed to prime the slowing economy.
On Wednesday, home minister Palaniappan Chidambaram said the Union cabinet approved a proposal to put funds into UCO Bank, Central Bank of India and Vijaya Bank by subscribing to their shares.
“Today accessing the capital market is not a viable option. Capital is required. Therefore, we decided to infuse capital,” Chidambaram told a news conference.
UCO Bank will get Rs1,200 crore -- Rs450 crore in FY09 and the remaining Rs750 crore next fiscal, he said.
Central Bank of India will get Rs700 crore each this fiscal and the next, while Vijaya Bank will get Rs500 crore in FY09 and another Rs700 crore in FY10.
The news helped shares of the three banks up by 3-5%.
High Credit Demand
Indian banks are pressed for fresh capital to comply with the RBI’s norms on meeting capital to risk-weighted assets ratio (CRAR), or capital adequacy ratio, by end March.
“The policy is that we will recapitalise all banks to ensure all of them reach to a 12% CRAR,” Chidambaram said.
The funds would also enable banks scale up lending to sectors such as manufacturing and infrastructure which are witnessing a sharp slowdown.
Bank loans grew 22.1% in the year to 16 January, much lower than the 30% growth seen two years ago when the economy was growing at a scorching pace of more than 9%. India’s GDP is seen growing 7.1% in the year to March.
As signs of a slowdown showed in falling factory output, exports and car sales, the government urged banks to pass on the benefits of its aggressive monetary easing to borrowers by cutting lending rates and boosting loan growth.