More capital expected for the state-run banks

Fresh capital worth Rs 10,000 crore is expected for the public sector banks. Official sources said that Credit amounting to $2 billion is likely to come by November end and thereafter disbursal to individual banks will start depending on the financial status of each bank at that time.



The loans are a part of the World Bank's $14 billion crisis-related lending for India. This will help the country in faster recovery.

This credit infusion would ensure credit flow in productive sectors. It aims at enabling banks to maintain a Capital to risk weighted assets ratio (CRAR) of 12 percent in order to sustain economic growth.

The finance Ministry have received petitions from various banks regarding a share of these funds and the ministry is examining these requests.

Earlier this month, the World Bank's executive board approved a loan of $2 billion with the. The loan is intended at helping infrastructure development, small and medium enterprises and the rural economy.

World bank Country director for India said that he preferred to call it " injection of capital" to "recapitalization" since liquidity was not an issue for the Indian banking sector. He added that the sector had done "remarkably well".

Dena bank has asked the government for a capital infusion of Rs 500 crore whereas union Bank of India has approached the government for a capital infusion of Rs. 1800 crore for its expansion plans. Punjab Sind Bank has asked for Rs 700 crore during the current fiscal. Besides these, UCO Bank, Central Bank of India and Vijaya Bank - together are expected to get Rs 2,150 crore.

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Rs 10,000-cr of WB fund to flow into banks by December

More than half a dozen PSU banks are expected to get about Rs 10,000 crore as fresh capital by December following the World Bank board's decision to inject funds into these PSBs and enhance their capacity to lend.


Loans worth $2 billion is likely to come by the end of November and thereafter disbursal to individual banks would start depending on the financial status of each bank at that time, said official sources.

Various banks have requested for capital infusion and the Finance Ministry is examining those request, sources said.

Earlier this month, the executive board of the World Bank approved $2 billion loan to enhance banks' capital.

The World Bank fund would be utilised to shore up their capital against various risks to ensure credit flow to productive sectors.

The capital infusion would come with the objective to enable banks to maintain Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent to ensure credit growth continues to sustain economic growth.

The World Bank's $2 billion Banking Sector Support Loan, with 30 year maturity, would help select public sector banks expand credit for infrastructure development, small and medium enterprises, and the rural economy.

Preferring to call it "injection of capital" instead of "recapitalisation" as the latter could mean banks are short of capital, World Bank Country Director for India Roberto Zagha had said liquidity is not an issue with the banks as the Indian banking sector has done "remarkably well".

Many public sector banks like Union Bank of India, Dena Bank, Punjab Sind Bank, Bank of Maharashtra, UCO Bank, Central Bank of India and Vijaya Bank.

Dena Bank has requested the government for capital infusion of Rs 500 crore while Punjab Sind Bank has asked for Rs 700 crore during the current fiscal.

At the same time, UBI has approached the Centre for a capital infusion of Rs 1,800 crore to fuel its expansion plans.

"We have asked for Rs 1,800 crore capital from the government. Whether this will be availed in equity or some other form remains to be worked out," UBI Executive Director S Raman had said.

Besides, three public sector banks — UCO Bank, Central Bank of India and Vijaya Bank — together are expected to get Rs 2,150 crore.

UCO Bank is expected to get Rs 750 crore, while Central Bank of India and Vijaya Bank will receive Rs 700 crore each

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$3-bn World Bank funds for PSU banks

The World Bank is likely to approve by the end of this month a proposal to provide $3 billion (nearly Rs 15,000 crore) to the government to recapitalise public sector banks.

While $2 billion from this is expected to be disbursed by December or so, the remaining amount is expected at the end of next year.

The government had proposed Rs 18,000 crore to replenish the capital of state-owned banks during the current fiscal year in a bid to boost their balance-sheet muscle in line with international regulatory standards to help them lend more money to companies and individuals.

Barring a handful like the State Bank of India and Punjab National Bank, most public sector undertaking (PSU) banks are likely to get a share of the capitalisation funds.

“We are planning to recapitalise most of the banks except just three or four,” a senior government official told HT.

Three public sector banks —UCO Bank, Central Bank of India and Vijaya Bank — have already got Rs 3,800 crore.

The fund would help these banks to shore up their capital adequacy ratio (CAR) while helping them to adhere to the stringent Basel II norms.

Several banks including the United Bank of India and Punjab and Sind Bank also have the option of raising additional funds by tapping the capital market.

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World Bank stimulus: $4.3-bn loan to boost PSBs, IIFCL & Power Grid

The World Bank has approved $4.3 billion loans for India, including a $2-billion fund to recapitalise seven public sector banks. Along with $1.2 billion for India Infrastructure Finance Company Ltd (IIFCL) and $1 billion for the Power Grid Corporation, the loans make up the largest block released by the World Bank to India in one go. A World Bank statement said the ‘banking sector support loan’ will help India maintain the economic stimulus programme by shoring up the capital base of banks, whose capital adequacy ratio has slipped to less than 12%. “A possible second loan, for about $1 billion, is likely to be provided by June 2010,” the statement said. The loan will supplement the government’s efforts to improve the financial health of the banks as they migrate to a higher capital adequacy ratio under Basel II standards from March 31, 2009. “Supporting infrastructure is particularly important during the current crisis, not just to sustain the domestic economy at a time of reduced global demand, but even more to lay the foundations for stronger future growth,” said World Bank’s India director Roberto Zagha. As on March 31 2009, Uco Bank had the lowest capital adequacy ratio at 9.75%, followed by Dena Bank at 10.73%, Bank of Maharashtra at 10.75%, Syndicate Bank at 11.37%, IDBI at 11.57%, Central Bank of India at 11.75% and Punjab Sind Bank at 11.88%. These banks would be among the first to benefit from the recapitalisation move. India estimates that public sector banks will require an injection of at least $4.8 billion during 2009-11 to maintain credit expansion over the medium term, the World Bank said. The larger amounts of loans are also an indication of the deeper involvement of the Bank in India. The loans for the bank recap will be priced at Libor plus 0.17% and a service charge of 0.25%. With Libor at about 1.1%, the rate works out to less than 2%. The loans for IIFCL and Power Grid Corporation are at lower, at Libor minus 0.03%. The bank loans will be given as a budgetary support, which will then be used for bank recapitalisation. The finance ministry has promised to ensure banks’ capital adequacy ratio is at least 12%, more than the 9% prescribed by RBI. The IIFCL loan has a maturity of 28 years, including a grace period of seven-and-a-half years. The loan will enable IIFCL it to catalyse private financing for public-private partnerships in the infrastructure sector, the World Bank noted. It would also stimulate the development of a long-term local currency debt financing market. The loan for the Power Grid Corporation will finance the fifth power system development project to expand the electricity transmission networks in the western, northern and southern parts of India. Of the total $14 billion loans committed to India during 2009-12, the World Bank has already granted about $5 billion, including the current set....

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Home loans up to Rs 10 lakh get 1% interest rate subsidy

Affordable housing, especially in non-metros, could get a much-needed boost with the Government on Thursday approving the one per cent interest subvention scheme for housing loans up to Rs 10 lakh. The Centre has allocated Rs 1,000 crore for the scheme.
Under the new scheme approved by the Cabinet, the interest subsidy will be made available through commercial banks and housing finance companies for construction/purchase of a new house or extension of an existing one. This will be allowed so long as the cost per housing unit does not exceed Rs 20 lakh. The move augurs well for the sector as it comes at a time when there has been a notable slide in the flow of credit to the sector. This was largely on account of increase in real estate prices, slackening of income growth, and rise in interest rate for home loans — all of which have brought home sales to a near standstill since late last year.
The sop will be available only for the first twelve instalments for loans sanctioned and disbursed in the twelve months running from the date of publication of the scheme.
Also, the one per cent subsidy will be computed for 12 months on disbursed amount, and adjusted upfront in the principal outstanding irrespective of whether the loan is taken on fixed or floating rate basis.
On a housing loan of Rs 10 lakh, the interest relief will amount to Rs 10,000 per account, an official release said. As such, the scheme of a size of Rs 1,000 crore is expected to cover 10 lakh beneficiaries in one-year period.
Meanwhile, Mr S. Sridhar, Chairman, National Housing Bank (NHB) — the designated nodal agency for this scheme — told Business Line that the scheme will help improve sentiment in the housing sector, especially those in the non-metros.
“A home loan borrower will be encouraged to take a decision. The developers can also quickly get their act together to increase the supply of affordable housing,” Mr Sridhar said. Developers such as DLF and Unitech said that the scheme would “galvanise” buying sentiments. Clearly, it would benefit buyers in tier-II and tier-III cities as also affordable housing projects that are now coming up in the suburbs of major cities. But, it may not be of much benefit to buyers in prime locations of metros where the ticket sizes tend to be over Rs 20 lakh.
“Nearly, 50-60 per cent of potential home buyers belong to the low cost housing category. So, the scheme is a welcome step and would benefit buyers in smaller cities and suburban locations”, Mr Pradeep Jain, Chairman of Parsvnath Developers, said.

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