Recapitalization of Public Sector Banks

The Union Cabinet today approved the following:

(i) To provide capital funds to Public Sector Banks (PSBs) during the year 2012-13 to the tune of Rs.12,517 crore to maintain their Tier-l CRAR at comfortable level, so that they remain compliant with the stricter capital adequacy norms under BASEL-III as well as to support internationally active PSBs for their national and international banking operations undertaken through their subsidiaries and associates.

(ii) 'In principle' approval of the Cabinet is accorded for need based additional capital infusion in PSBs from the year 2013-14 to 2018-19 for ensuring compliance to Capital Adequacy norms under Basel- III.

This will ensure compliance to the regulatory norms on capital adequacy and will cater to the credit needs of productive sectors of the economy as well as to withstand the impact of stress in the economy. This will also support national and international banking operations of PSBs and will boost the confidence of investors and market sentiments.

The infusion of Rs. 12,517 crore in the equity capital of PSBs would enable them to expand their credit growth. This additional availability of credit will cater to the credit needs of our economy and will also benefit employment oriented sectors, especially agriculture, micro & small enterprises, export, entrepreneurs etc. in promotion of their economic activities which would, in turn, contribute substantially to the growth of the economy.

The exact amount, mode of recapitalization and other terms and conditions in each PSB would be decided in consultation with them at the time of infusion.

Background

The Government is committed to keep all the PSBs financially sound and healthy so as to ensure that the growing credit needs of our economy are adequately met. To meet the credit requirement of the economy, banks would require capital funds commensurate to the increase in their Risk Weighted Assets (RWAs).

Implementation of Basel III Capital Regulations enhances requirement of core equity capital by banks due to higher capital ratios. The Basel III capital ratios will be fully phased in as on March 31 2018. The requirement of core equity will also increase due to increase in RWAs of banks under Basel III, as risk weights in the areas of credit risk including counterparty credit risk, external credit assessments and market risk are higher than those in present regime of Basel II.

In view of this, the Government has decided to infuse capital in PSBs during the year 2012-13.