Govt to infuse Rs.150 billion in state run Bks

The cabinet approved infusion of 150 billion rupees ($3.4 bln) in state-run banks during the fiscal year ending March, 2011, to help meet growing credit requirements of the economy, a government statement said.

"The infusion of 150 billion rupees in Tier I capital instruments of PSBs would enable them to expand their credit growth by about 1.85 trillion rupees ($41.6 bln)," the statement said on Friday.

The cabinet also gave its approval for infusion of additional capital in the next financial year after considering the third quarter results of banks in 2010/11.

In February, Finance Minister Pranab Mukherjee had made a provision of 165 billion rupees ($3.7 bln) in the annual budget for state-run banks to ensure that they are able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.

India has signed two agreements with the World Bank for a loan of $3.2 billion to provide additional capital to state-run banks. Formalities for the first tranche of $2 billion have already been completed, it said.

The government expects an infusion of additional capital would also strengthen the Indian banking system, which remained largely unaffected during global financial crisis since September 2008.

India, Asia's third largest economy is expected to grow by around 8.5 percent in 2010/11 and 9 percent in the next financial year as per government estimates.