Fund infusion in PSU banks likely in a week

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Government will decide this week the final allocation of funds to public sector banks, which needed to be recapitalised to meet the future credit demand... “Within this week allocation of the funding to PBSs will be decided and rest I think the process still has to go through,” said D K Mittal, financial services secretary said.

Last month finance minister P Chidambaram had said that most banks would require additional capital and fund allocation to various banks would be decided in the next few weeks. He had also pointed that budgetary provision of Rs 15,000 for infusing additional capital are already there and decision would be taken in the next few weeks about infusing that additional capital into banks.

When asked if capital infusion would be done through rights issue Mittal said, “Once respective boards approve it then only the finance ministry will take a view on that.”

Mittal said that three banks are in urgent need of capital, Indian Overseas Bank, Central Bank of India and Bank of Maharashtra. SBI, which is the largest lender in the country, would also need capital to improve credit situation. All but one Dena Bank have tier-I capital of above eight per cent well above Basel norms.

Reserve Bank of India (RBI) issued Basel III guideline earlier this year to incorporate better risk management mechanism by banks. Capital adequacy guidelines based on the Basel III capital regulations will begin from January 1, 2013.

In financial year 2011-12, government infused a total of Rs 12,000 crore into public sector banks.

To a question on holding company structure, Mittal said, “RBI has broadly agreed on this, however, there is a need to look at regulatory platform because it would be such a large conglomerate and how it is to be regulated. Also, what kind of capital adequacy it should have.”

Mittal shared his views in an event where Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) and Credit Information Bureau (India) (CIBIL) signed a MoU to share database. The collaboration is expected to mitigate risk of lenders by ensuring that there is no existing mortgage or loan against the property.

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