As part of the capital restructuring plan of banks, government has approved to infuse Rs 800 crore in United Bank of India (UBI) in two trances until March 2010, said Home Minister P Chidambaram.

Out the approved amount, the government would inject Rs 250 crore on March 31st, 2009 and the remaining Rs 550 crore during the new fiscal.

The government will infuse the capital into the bank by subscribing to UBI's perpetual non-cumulative preference shares that fall under tier I capital. The bank will pay an interest at the rate of 6% on these shares to the government. UBI's executive director, TM Bhasin informed that the interest will be paid from the bank's profits after paying the tax.

"The restructuring of the paid-up capital would improve key financial indicators of the bank and additional capital funds would enable the bank extend more credit to the productive sectors of the economy," he said.

Further the government has been injecting capital into the public sector banks that have their capital adequacy ratio (CAR) below 12%. "This move will help UBI to prop its capital adequacy ratio to over 12% from the current level of 11%," said Bhasin.

This capital infusion will provide the bank a margin of Rs 1,085 crore for raising tier II capital. "The headroom will increase when we plough back our profit to the reserves," Mr Bhasin said.

UBI is wholly owned by the government and it is the fourth bank after Central Bank of India, UCO Bank and Vijaya Bank to receive fresh doses of capital from the government.

Besides, the bank has also been permitted to restructure the bank's capital by reducing its paid-up equity to Rs 266 crore from Rs 1,532 crore and set the balance of Rs 1,266 crore in reserves.