New Delhi, May 28: The government is keen to recapitalise PSU banks as well as the Exim Bank of India and the National Housing Bank through a $3-billion World Bank loan.
The finance ministry will be placing the proposal before the cabinet next month.
“We intend to take the loan issue before the cabinet, and once this is cleared it will be included in this year's budget,” said officials.
For some time, government officials have been debating on the need to recapitalise state-run banks which do meet Basel-II norms of capital adequacy but need funds to give them the leverage to lend large sums to industry.
This recapitalisation plan, which will be in total worth Rs 16,000 crore, or about $3 billion, is being seen as a stimulus package, which can lead to the injection of more credit into the economy and help reverse the slowdown.
Industry, especially stressed sectors such as real estate, retail and exporters, has been complaining of the high cost of credit and bottlenecks to lending.
The inclusion of the NHB and the Exim Bank, the officials said, meant an attempt was being made to help housing and export companies.
Finance ministry officials said they would recapitalise all PSU banks with CAR of below 12 per cent. CAR, or capital adequacy ratio, is the ratio of a bank’s capital to its risk and an indicator of financial health. CAR can be improved by either infusing capital or selling risky assets.
“Some 15-17 scheduled PSU banks will be covered besides the specialised banks,” officials said.
CAR of most Indian banks is well above the Basel norm of 8 per cent and the RBI norm of 9 per cent. However, officials said, “The aim is to bring the CAR norm above 12. This will help the banks turn stronger and be able to lend larger sums.”
Banks with low CAR at the end of March 2008 include IDBI Bank (11.95 per cent), United Bank (11.88), Andhra Bank (11.61) and Indian Overseas Bank (11.96).
Source : Telegraphindia