The government today approved restructuring of state-owned United Bank of India's capital, which includes reduction in paid-up equity by over 80 per cent to improve its financial parameters.
Besides, the government will infuse a sum of Rs 800 crore into the bank to enable it to provide more capital to productive sectors.
The paid-up equity capital of the bank will be reduced to Rs 266.43 crore, Home Minister P Chidambaram told reporters after a Cabinet meeting which took this decision.
The government will take back excess paid-up capital of Rs 1,266 crore and simultaneously will infuse this amount in the capital reserves of the bank.
Earlier in 2006, the Cabinet allowed United Bank to write off its accumulated losses of Rs 278.44 crore against the capital of Rs 1,810.87 crore.
Besides restructuring, the government will subscribe a sum of around Rs 800 crore in innovative tier I capital instruments of the United Bank of India in two tranches of around Rs 250 crore in 2008-09 and around Rs 550 crore in 2009-10.
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"The restructuring of the paid up capital would improve key financial indicators of the bank and additional capital funds would enable the bank extend more credit to the productive sectors of the economy," Chidambaram said.
Industry has been complaining of non-availability of credit despite enough liquidity.