What does government's Rs 11,337 crore capital infusion mean for the banks?

On Tuesday, the government announced capital infusion of Rs 11,337 crore in Punjab National Bank, Indian Overseas Bank, Andhra Bank, Corporation Bank and Allahabad Bank.

Of the Rs 11,337 crore, Rs 2,816 crore will be infused in PNB, Rs 2,555 in Corporation Bank, Rs 2,157 crore in IOB, Rs 2,019 crore in Andhra Bank and Rs 1,790 crore in Allahabad Bank.

Out of these five banks, Corporation Bank, Allahabad Bank and IOB are under the prompt correction action of RBI.

The government's action is expected to improve the tier 1 capital ratio of these banks.

Tier 1 capital is the core measure of a bank's financial strength which is composed of core capital, consisting common stock and disclosed reserves.

Corporation Bank is said to be the biggest beneficiary of the move as its tier 1 capital ratio will climb to 12.11 percent from the current 10.17 percent, followed by Indian Overseas Bank which will see a rise in its tier 1 capital ratio by 1.60 percent to 8.76 percent against the current 7.17 percent.

Andhra Bank’s ratio will stand at 8.77 percent against the current 7.44 percent, while Allahabad Bank and PNB’s tier 1 capital ratio will improve to 8.07 percent and 7.74 percent from 6.83 percent  and 7.12 percent respectively.