Mumbai: Country's largest lender SBI on Monday said the government has approved capital infusion of Rs 7,900 crore in the bank, a development that will help the lender to increase its business activities.

The capital infusion will "increase the issued capital by SBI by way of preferential allotment of equity shares to the government to the extent of approximately Rs 7,900 crore including premium," SBI said in a filing with the BSE.

The Government of India conveyed its approval on Monday, it said.

With the capital infusion, the government stake would go up to about 65 percent. At present, the government of India holds 59.4 percent stake in SBI.

The capital infusion by the government will raise tier I capital of the bank to about 8 percent.

As of September, 2011, the capital adequacy ratio (CAR) of SBI stood at 11.4 percent. Of this, tier-I capital stood at 7.47 percent at the end of second quarter against the minimum 8 percent level desired by the government.

It is to be noted that earlier this month, SBI Chairman Pratip Chaudhuri had said the government has approved a capital infusion of Rs 6,000-8,000 crore in the bank by March 31.

Last year, SBI had submitted a proposal to the government for raising Rs 20,000 crore through a rights issue to fund its growth plans over the next two fiscals.

SBI had raised over Rs 16,000 crore through a rights issue in 2008. In the last SBI rights issue, the government contribution was in the form of bonds to the bank instead of cash.

In 2010-11, the government provided capital support to the tune of Rs 20,157 crore to public sector banks.

Most of the public sector banks got capital support from the government last fiscal. These banks included Punjab National Bank, Bank of Baroda, Union Bank of India, Oriental Bank of Commerce, UCO Bank and Dena Bank.

It is to be noted that Financial Services Secretary D K Mittal had said the state-run banks would be requiring about Rs 3.5 lakh crore by 2021.

A committee headed by Finance Secretary R S Gujral is working out a strategy for the required capital infusion in public sector banks over a period of next 10 years.