The government on Monday disallowed return of equity by nationalised banks, saying it will be required to meet tighter prudential norms by them in the medium term.

An official release said that after due consideration, the Centre had decided that the nationalised banks need not return equity in anticipation of increased capital requirements due to Basel II Accord, which provides for fulfilling tighter norms by banks.

Basel II Accord, to be in place by 2006, necessitate banks to meet international standards and implement best practices.

Some nationalised banks had approached the government for returning some additional equity provided by the Centre as part of capital restructuring in April-May 2003.

Punjab National Bank, Oriental Bank of Commerce, Canara Bank, Bank of Baroda, Indian Overseas Bank and Andhra Bank had expressed their desire to return the government equity.

Contradictory statements were issued by the government on whether banks would have to return equity at par or with premium, resulting in violent movements in the scrips of nationalised banks in the stock markets.