The Union government has decided to infuse capital into the three public sector banks in order to help the banks in improving their capital adequacy ratio and also facilitate them to extend credit to the productive sectors of the economy.

Capital to the tune of Rs3,800 crore will be infused in the three banks including UCO Bank, Central Bank of India and Vijaya Bank by subscribing to their shares until March 2010. The approval for the infusion of this amount was given in meeting of the Union Cabinet on February 11th, said Union Home Minister, Mr P. Chidambaram.

"Today accessing the capital market is not a viable option. Capital is required. Therefore, we decided to infuse capital," added Chidambaram.

As per proposal, UCO Bank and Vijaya Bank would get Rs 12,00 crore each while Central Bank of India will get Rs 14,00 crore.

UCO Bank will get Rs450 crore in this fiscal and the remaining Rs750 crore in the next fiscal. Central Bank of India will get Rs700 crore each in both the fiscals and Vijaya Bank will receive Rs500 crore in the current fiscal and another Rs700 crore in FY-10.

Mr Chidambaram informed that the amount would form part of tier-I capital.

The banks are given this fresh capital to fulfill the RBI's norms on meeting capital to risk-weighted assets ratio (CRAR) of 12% by March end. "The policy is that we will recapitalize all banks to ensure all of them reach to a 12% CRAR," Chidambaram said.

Also the funds will help banks to facilitate lending to the ailing sectors such as manufacturing and infrastructure.

This news has enabled the shares of the three banks up by 3% to 5%.