The government will provide funds worth Rs. 5000 crore to public sector banks to shore up their capital for lending. These publicly-held banks control three-quarters of India's banking assets.

A finance ministry official said that the financial aid would be in addition to Rs. 16,000 crore provided by the World Bank to recapitalise public sector banks.

The centre would infuse around Rs. 21,000 crore and add its Rs. 5000 crore into the public sector banks in the next year. These funds would be in the form of Tier-I capital. Tier-I capital is core capital and includes Equity capital and disclosed reserves.

The contribution of the funds would be in the form of preference shares, equity share through rights issue and would depend on the equity structure of the banks.

As per Basel-II norms, the required capital adequacy ratio for banks is 9 percent. In India, the CAR is 12 percent. CAR is the amount kept aside by banks to cover unexpected losses.

With this infusion, the PSBs would have an adequate CAR for next four years by which time the centre is expecting to complete its consolidation process which aims at strengthening the public sector banks.

Some of the banks expected to get a share of these funds include Dena bank, Andhra bank, Oriental bank of Commerce. However, the government would not be providing funds to banks with government stake more than 55 percent such as State Bank of India.