Capital infusion in PSU banks likely next month

Business

oi-Roshni

By Roshni Agarwal

Published: Saturday, January 25, 2014, 12:00 [IST]

With a major stake in public sector banks, government each year earmarks the amount in its annual budget for banks to enable them to meet their minimum capital adequacy criteria. The amount earmarked for capital infusion in banks in the budget 2013 which stood at Rs. 14,000 crore ie reported to have exhausted.

So, capital infusion that might be effected by the government next month will be over the allocated sum of Rs. 14,000 crore. In respect of the amount banks shall require for addressing the minimum capital adequacy ratio (CAR) requirement as well the source from where such funds shall be obtained is not known.
However as per one of the business dailies report, Rajiv Takru-Financial Services Secretary has been quoted saying "We have not earmarked anything because the Finance Minister had given a promise that depending on whatever banks do, the Government will find the resources to provide capital".

Further Takru said, "Depending on banks' performance in the (retail lending) schemes up to January 31, 2014, the Government will look to infuse additional funds." So, banks depending on their loan book by the end of this month shall obtain additional capital infusion. More precisely, the quantum of capital infusion shall be determined on the basis of retail lending spree of banks.

To strengthen the industry's loan book as well as to prompt demand from borrowers, Finance Minister has earlier asked both private as well as public sector banks to lower interest rate. Consequently, several banks lowered base rate together with interest rate and pushed the demand for loan products in the market.

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