Around 10 public sector banks (PSBs) will get a total capital infusion of Rs 12,517 crore from the government before this financial year ends. This is to enable a step-up of lending at this time of slowing economic growth, as well as meeting the capital adequacy norms.
The Cabinet on Thursday cleared a proposal in this regard, announced in the Budget for 2012-13. It also gave in-principle approval for providing need-based recapitalisation of banks till 2018-19 for ensuring compliance with the stiffer Basel-III capital adequacy norms.
The country’s largest lender, State Bank of India, the Indian Overseas Bank, Central Bank of India and Bank of Maharashtra are likely to among those to get funds. SBI Chairman Pratip Chaudhuri had recently said he expected Rs 3,000 crore of capital infusion through the preferential route by the government.
Finance Minister P Chidambaram told reporters the banks, the amount for each and the terms would be decided in consultation with these.
“This will enable the banks to maintain Tier-I CRAR (capital to risk-weighted assets ratio) at a comfortable level and will comply with the stricter capital adequacy norms of Basel-III, whenever it is implemented,” he said. The government had infused about Rs 20,117 crore in PSBs during 2010-11 and Rs 12,000 crore in 2011-12.
The Cabinet also gave in-principle approval for need-based additional capital infusion in PSBs from 2013-14 to 2018 -19 for ensuring compliance with the Basel-III global banking norms on capital adequacy to minimise financial risk.
This would cater to the credit needs of productive sectors and help withstand the impact of stress in the economy, Chidambaram said. Beside supporting the national and international banking operations of PSBs and boosting the confidence of investors, as well as the market sentiment, he added.
Earlier this week, global regulators gave banks four more years and greater flexibility to be compliant with Basel-III norms, as advanced economies have struggled to recover. Banks had complained they could not meet the January 2015 deadline. So, the committee’s oversight body agreed to phase in the rule over four more years.
“The requirement of core equity will also increase due to increase in the Risk Weighted Assets 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 the present regime of Basel-II,” said Chidambaram.
Centre to divest 10% stake in EIL; aims to raise Rs 800 crore
Struggling to raise proceeds from disinvestment to meet the year’s Budget estimate of Rs 30,000 crore from this, the government will offload a 10 per cent stake in consultancy major Engineers India Ltd (EIL).
The disinvestment will take place through a follow-on public offer (FPO), Chidambaram said, hoping it would take place in the current financial year (ending on March 31).
After the disinvestment, the government’s shareholding in the company would come down to 70.40 per cent. The paid-up equity capital as on March 31, 2012, was Rs 168.47 crore. The government holds 80.40 per cent stake in EIL, a Mini Ratna’ comopany. In 2010, it had divested another 10 per cent stake through an FPO.
To a query, Chidambaram said, “The OFS (offer for sale) mechanism is not available in this case”, as the company is already compliant with market regulator Sebi’s public holding norms. Besides, it is not among the top 100 companies in terms of market capitalisation. The government used the OFS route, popularly known as the auction method, to divest stake in NMDC and Hindustan Copper this financial year. Sebi introduced OFS to help companies achieve the minimum public holding norms.
Proposal for revival of Scooters India deferred
The government also deferred a proposal for the revival of sick public sector unit, Scooters India Ltd (SIL).
“The Cabinet has deferred the proposal for revival of Scooters India due to absence of Heavy Industries and Public Enterprises Minister Praful Patel in the meeting,” a minister said after the Cabinet meeting here.
After the government shelved a plan to sell out its entire stake in SIL, the Department of Heavy Industry (DHI) had proposed a revival package of Rs 200 crore.
The automobile company, which has about 1,200 regular employees, has been incurring losses since 2002-03. In March 2009, the company was declared sick.
Cabinet awards oil and gas blocks to GAIL, Deep Energy
The Cabinet awarded one oil and gas exploration block each to state-owned gas firm GAIL India Ltd and to Deep Energy, after it rejected the bid placed by Ishar Gasoil Pvt Ltd. The bid was rejected because the company had a negative net worth.
“CCEA rejected Ishar Gasoil’s bid for three blocks that were offered under the ninth bid round of the New Exploration Licensing Policy, due to the company having negative networth,” Chidambaram told reporters after the meeting.
The Cabinet also raised the amount of assistance to the poor for construction of houses from Rs 45,000 to Rs 70,000 per unit under Indira Awas Yojana.
For hilly and other difficult areas, the grants for constructing houses under the scheme have been increased from Rs 48,500 crore to Rs 75,000.