Govt to infuse Rs. 6,990 cr into nine public sector banks

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SME Times News Bureau | 09 Feb, 2015
The government has decided to infuse Rs.6,990 crore in nine public sector banks (PSBs) soon, out of the current year's budget, for which orders are being issued, an official statement said Saturday.

"This year, the government of India has adopted a new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position," the statement said.

The banks that will be the beneficiaries of the infusion are: State Bank of India, Rs.2,970 crore; Bank of Baroda, Rs.1,260 crore; Punjab National Bank, Rs.870 crore; Canara Bank, Rs.570 crore; Syndicate Bank, Rs.460 crore; Allahabad Bank, Rs.320 crore; Indian Bank, Rs.280 crore; Dena Bank, Rs.140 crore and Andhra Bank, Rs.120 crore.

This is the first tranche of capital infusion from the government, which had allocated Rs.11,200 crore in the 2014-15 budget for the purpose. Indian PSBs require equity capital of Rs.2.4 lakh crore by 2018 to meet global Basel III norms on capital adequacy.

The methodology for arriving at the amount to be infused in these banks has been based on efficiency parameters, the statement said.

"First of all, weighted average of return on assets (ROA) for all PSBs for last three years put together was arrived at and all those who were above the average have been considered.

"The second parameter that has been used is return on equity (ROE) for these banks for the last financial year. Those who have performed better than average have been rewarded," it added.

Stating that the central government is conscious of the fact that a lot of reforms are required in the PSBs, it arranged for the recent two-day retreat of chairman and managing directors of banks and financial institutions called 'Gyan Sangam' at Pune Jan 1 and 2, 2015.

"One of the general principle adopted during the Retreat was that efficient banks should be encouraged. For the last few years, government of India has been infusing capital to those banks whose equity erosion has taken place," it said.

Therefore, this year, the government has adopted this new criteria in which the banks which are more efficient would only be rewarded with extra capital for their equity so that they can further strengthen their position, it added.