New Delhi: The government will seek additional $3 billion (about Rs14,440 crore) from the World Bank to infuse funds into public sector banks to shore up their capital against various risks to ensure credit flow to productive sectors to beat the economic slowdown.
This is the part of $4.2 billion (about Rs20,160 crore) additional fund that India is seeking over and above the permissible annual grant to the country.
“We have sought additional World Bank funding over and above what is normally admissible every year additional to the extent of $4.2 billion. Of that $3 billion has been sought for the recapitalisation of the banks over the period of about two years,” economic affairs secretary Ashok Chawala said in a post interim-budget conference.
The process is currently in the pipeline and appropriate provision and inclusion would be made in the budget statement as we go along during the year, he said.
In his interim-budget speech during the day finance minister Pranab Mukherjee said “government would recapitalise the public sector banks over the next two years to enable them to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12% to ensure credit growth continues to sustain economic growth.”
Remaining $1.2 billion would be utilised for strengthening the financial health of the public sector entities like Powergrid Corporation and others, Chawala said.
There is a roadmap for the recapitalisation of public sector banks. To expedite that process and get it funded the Government of India has approached the World Bank which has sought proposal for additional areas in which the government wish to seek assistance, he added.
When asked which are the banks that would need financial assistance, finance secretary Arun Ramanathan said capital infusion would depend up on the need of each bank.
“The way assets and profits grow that would determine the extent to which you have to capitalise each banks,” Ramanathan said.
As of June 2008, there are five banks which have CRAR between 10-11% and six banks between 11% and 12%, he said.
“Right now the intention is to capitalise four banks during this financial year. We have already got approval for capitalising UCO Bank, Central Bank of India and Vijaya Bank,” he said.
The fourth will be United Bank of India, which will be capitalised this year (2008-09), he said, adding, as the RBI norms banks should have CRAR of 9%.