New Delhi: In a decision that would once again stoke the debate whether some of the nationalized banks have become white elephants, the Central government is mulling over providing a budgetary support of Rs 20,000 crore to six nationalized banks during the current financial year.

DK Mittal, Secretary (Financial Sector), said, “The Committee headed by Finance Secretary is looking into how much financial assistance needs to be provided to the nationalized banks over the next 10 years.”

The committee will submit its report by the end of this month.

After holding consultations with Finance Minister Pranab Mukherjee and Reserve Bank Governor, we will take final decision by November 15 over funds earmarked for recapitalization of banks. The amount would be around Rs 20, 000 crore,” added Mittal.
The bailout package will be given to six banks including Bank of India, State Bank of India, Syndicate Bank, Bank of Baroda and Indian Bank. After receiving the package, the Tier-1 capital ratio of these banks will become 8 percent.

The Tier-1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets (RWA). This ratio reflects bank’s capacity to bear liability.
The Tier-1 ratio of the SBI had come down to below 8 percent norms, leading to downgrading of its ratings.

The banks are not in a position to fulfill even the legal norms. Last year also they were provided Rs 20,117 crore as a stimulus package through bank loan from the World Bank.

During the current fiscal, the government is diverting funds from its own kitty. In the budget 2011, Rs 6000 crore had been allocated under this head.

The Centre will manage the rest fund by bringing supplementary demands during the Winter Session of the Parliament.

JPN/Bureau