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Govt may hold capital infusion until market stabilises

Govt may hold capital infusion until market stabilises

Unconfirmed reports indicate that the government may wait for the stock market to stabilise before infusing capital into state-run banks.

The government feels that the chances of losing huge amount of money is lower once the stock prices reach a stable level.

Earlier, government planned to provide Rs 14,000 crore capital to state-run banks by the end of September. By the end of this month, the finance ministry would finalise the bank-wise fund allocation. But the actual release of funds may happen later, reports indicate.

In lieu of the capital, government would get fresh preference shares to be issued by these banks. The government may get more number of shares with the decline in share prices of banks. Consequent to this, government holding will be more than what was envisaged, media reports suggest.

Infusion of capital is necessary to ensure that public sector banks meet Basel III regulations as they come into force in a phased manner.

Owing to higher capital ratios, banks will have to maintain higher core equity capital under the Basel III regulations. The Basel III capital ratios will be fully phased in as on March 31, 2018.

During 2010-11, government provided about Rs 20,117 crore to public sector banks and Rs 12,000 crore in 2011-12.

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