WB to give $3 bn to India for bank recap

New Delhi: India expects to get USD three billion from the World Bank in two tranches by March 31, 2010, to help it recapitalise public sector banks, besides National Housing Bank and EXIM Bank.

The World Bank may most probably give the first phase of the loan by June this year, a senior finance ministry official said here.

He said 17-18 public sector banks as well as National Housing Bank and EXIM Bank require more capital. In total, Rs 20,000 crore is needed to recapitalise these entities.

However, some of them may not need government help as they may raise money through public issues after the capital markets recover and raise other kinds of funds.

Earlier, the then Finance Minister P Chidambaram had said the government will inject fresh capital in seven public sector banks to improve their financial health and help them achieve a capital adequacy ratio of over 12 per cent.

"Today, I announce with the Prime Minister's permission that banks which have a capital adequacy ratio of below 12 per cent, well above (the) 8 per cent Basel norm, well above (the) nine per cent RBI stipulated norm...we will help them recapitalise and bring (the ratio) above 12 per cent," Chidambaram had in the Rajya Sabha.

He, however, had pointed out that the capital adequacy ratio of Indian banks was well above the Basel norm of 8 per cent and RBI-stipulated norm of nine per cent.

However, it is still not clear which banks may get Government help. The ratio measures the proportion of a bank's risk-weighted assets against its equity. It reflects the financial strength of a bank and its ability to take risk and remain solvent in times of a credit crunch.