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Government Will Inject $1.1 Billion Into Nine Banks
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India will inject 69.90 billion rupees ($1.13 billion) into nine state-run banks including State Bank of India in the financial year 2015, the finance ministry said on Saturday.
In a statement, it said the plan aimed to reward the banks' efficient use of assets and shareholder funds.
The move marks a change in the government's usual practice of injecting capital into banks which have suffered difficulties.
Other lenders due to receive government funds include Bank of Baroda, Punjab National Bank, Canara Bank and Syndicate Bank.
This is the first tranche of capital infusion for which the government had allocated Rs 11,200 crore in the Budget for 2014-15.
SBI will get a capitalisation of Rs 2,970 crore, followed by BoB Rs 1,260 crore, PNB Rs 870 crore and Canara Bank Rs 570 crore.
"Out of the current year's budget, the Government of India has decided to infuse Rs 6,990 crore in nine public sector banks (PSBs) for which orders are being issued," the statement said.
The capital infusion has been decided based on the performance of the bank. Better the performance higher will be the infusion.
"The methodology for arriving the amount to be infused in these banks has been based on efficiency parameters. 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 ministry said.
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.
Besides, Syndicate Bank will get Rs 460 crore, Allahabad Bank Rs 320 crore, Indian Bank Rs 280 crore, Dena Bank Rs 140 crore and Andhra Bank Rs 120 crore.
The government is in the process of deciding on remaining Rs 4,210 crore capital infusion. The entire fund infusion will be completed before March 31.
Public sector banks require equity capital of Rs 2.4 lakh crore by 2018 to meet global Basel III norms on capital adequacy. For the current fiscal, the government has allocated Rs 11,200 crore for bank capitalisation.
Finance Minister Arun Jaitley in the Budget speech had said that "to be in line with Basel-III norms there is a requirement to infuse Rs 2,40,000 crore as equity by 2018 in our banks. To meet this huge capital requirement we need to raise additional resources to fulfil this obligation".
While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country, the minister had said.
The government has infused Rs 58,600 crore between 2011 to 2014 in the state-owned banks.