The US government will inject $20 billion in fresh capital and give guarantees for about $306 billion of Citigroup's troubled loans, in a bid to save the beleaguered US banking giant from collapse.

The $20 billion funds being injected into Citi would carry an interest rate of 8.0 per cent for the first few years, a higher rate than that charged for other banks borrowing money from the $700 billion federal bailout fund, the Wall Street Journal reported.

In return, Citi will offer the government preferred shares. Citi will also modify, if possible, troubled mortgages held in the $306 billion pool, according to the guidelines issued by the Federal Deposit Insurance Corp (FDIC).

Citi should also get approval; from the government for all executive compensation, including bonuses.
 
Citi is trying to churn off its risky assets and put them under a separate government-supported company for managing bad assets or `bad bank'. The report said.

New York based Citi has over $2 trillion in total assets and another nearly $1.2 trillion in bad assets, which are mostly off-balance sheet.

Citi hammered out the agreement with the treasury department, the Federal Reserve and the Federal Deposit Insurance Corporation after its stock plunged 60 per cent to below $4 a share last week.  The stock is down 87 per cent so far this year.

According to the plan, the US government will freeze Citi's bad assets of around $306 billion, including mortgage-backed securities. Citi will, however, have to absorb the first $29 billion in losses and 10 per cent of the remaining bad assets.

Treasury will absorb the next $5 billion in losses while the FDIC will take on the next $10 billion in losses. The treasury will also absorb any losses beyond these.

Citi's has been weighing various options, including the sale of some of its assets and merger with other banks, as the company's share price sank. The bank also announced plans of massive job cuts even as CEO Vikram Pandit insisted that the bank was strong and had no liquidity problems.

The bank has operations in more than 100 countries.

Citi's executives last week debated options as the company's share price sank, including merging with another bank or selling off businesses. It also spoke to the regulators, and CEO Vikram Pandit told employees that the bank was strong and had no liquidity problems.