Govt infuses Rs 3,800 cr in 3 banks to raise capital adequacy

The government on Wenesday announced a Rs 3,800-crore fund infusion into state-run lenders - UCO Bank, Central Bank of India and Vijaya Bank - to shore up their capital adequacy.

Under the recapitalisation package Central Bank of India will get Rs 1,400 crore, while UCO Bank and Vijaya Bank will get Rs 1,200 crore each, Home Minister P Chidambaram told reporters after the cabinet meeting.

The capital infusion would be done in two tranches, he said, adding the first tranche would be made available during the current fiscal and the remaining in 2009-10.

As part of the first tranche, UCO Bank will get Rs 450 crore, while Central Bank of India and Vijaya Bank will get Rs 700 and Rs 500 crore, respectively, in the current fiscal.

Spelling out the reason for the capital infusion, Chidambaram said, this will help banks raise capital adequacy over 12 per cent much above the Basel II norms of 9 per cent.

In the next tranche, UCO Bank will get Rs 750 crore, while Central Bank of India and Vijaya Bank to get Rs 700 crore each, he said.

The amount would be form a part of Tier I Capital, he said, adding the infusion would increase the government holding in the three state-run banks.

The increase in the government's holding in these banks would depend on the instruments that they subscribe to, Chidambaram said, adding, such decisions would be taken by respective boards.

Under Tier I, banks can raise capital as equity and innovative instruments like perpetual non-cumulative preference shares and perpetual bonds.

The government holding in Central Bank of India currently stands at 80.20 per cent, UCO Bank 75.98 per cent, while in Vijaya Bank it is 53.87 per cent.

When asked whether these banks would be allowed to tap the primary market, Chidambaram said, accessing capital market is not a viable option."

Last year in November, the government restructured the capital structure of UCO Bank by converting Rs 250 crore equity into preference shares, to enable the bank raise fund in the market when required.

This conversion of equity into perpetual non-cumulative preference shares is in accordance with RBI circular dated 29th October, 2007.

Foreign investment via Indian firm out of FDI cap purview: Chidambaram

Foreign investment through an investing Indian company will not be taken into account in determining the sector FDI cap, the government on Wednesday said.

The Cabinet Committee on Economic Affairs (CCEA) approved the changes in the guidelines for calculating total foreign investment, direct and indirect, in Indian companies.

"The objective is to make it simple and transparent, according to the Department of Industrial Policy and Promotion (DIPP)," Home Minister P Chidambaram told reporters after the CCEA meeting.