Money will be used to shore up the lenders’ capital base
The World Bank (WB) is set to clear funding of $3.2 billion (over Rs 15,500 crore) for capital infusion into public sector banks ($2 billion or Rs 9,700 crore) and India Infrastructure Finance Company (IIFCL) next month.
The details of the two loans — which are part of India’s allocation of $14 billion (around Rs 67,900 crore) for three years starting July 2009 – were thrashed out by the government over the last few weeks and the World Bank board was expected to clear the assistance in the second half of September, sources close to the development said.
While the government had sought a $3 billion (over Rs 14,500 crore) assistance for capital infusion in public sector banks, the details of the remaining $1 billion (around Rs 4,850 crore) have not been finalised so far. But World Bank has given an in-principle approval to the proposal.
Sources said that the government was expected to identify the next set of banks requiring capital infusion based on their financial position and growth plans at the end of the third quarter of the current financial year. The loan agreement was also expected to be finalised around November, the sources said.
The loans are likely to be offered at London Interbank Offer Rate (Libor) plus a nominal spread, likely to be in a band of 25-30 basis points. The government has raised the funds on the grounds that it required funds to meet the challenges arising from the global financial crisis.
The government plans to recapitalise around 16-17 public sector banks where the capital adequacy ratio is around 12 per cent and the government has little headroom to lower its shareholding below the legally mandated 51 per cent. Of these, around a dozen banks are to be taken up for capital infusion by the end of the current financial year. The list is likely to include Bank of Maharashtra, Dena Bank, Andhra Bank, Allahabad Bank and Syndicate Bank.
More From This Section
Earlier this year, the government infused capital in four public sector banks — Central Bank of India, UCO Bank, Vijaya Bank and United Bank of India. Excluding aid for other projects which are expected to be announced later, the over $3-billion WB funding during the current fiscal would be the highest in the last few years.
The WB assistance during the year-ended June 2009 was $2.3 billion compared with $2.7 billion in the previous year.
During the year-ended June 2007, the multilateral agency had sanctioned assistance of the order of $3.7 billion for India.