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The Government may go in for a second round of capital infusion into public sector banks in February based on their performance on the retail lending front.
In the 2013 Union Budget, the Government had earmarked ₹14,000 crore towards capital infusion into banks, which has since been exhausted.
Any fresh infusion will be over and above the ₹14,000 crore. It is not clear where the money for the fresh infusion will come from or how much will be required.
Financial Services Secretary Rajiv Takru did not say how much the Government has earmarked for the second round of capital infusion.
“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,” Takru added.
Since the Government is the majority shareholder in almost all public sector banks, it infuses funds into banks every year. And, banks use these funds to meet their capital adequacy requirements and to expand business.
Takru said, “Depending on banks’ performance in the (retail lending) schemes up to January 31, 2014, the Government will look to infuse additional funds.”
In a bid to stimulate demand and therefore output, Finance Minister P. Chidambaram, had asked banks last year to lower their lending rates. He also wanted banks to lower lending rates for purchase of consumer durables, automobiles and homes.
Some banks obliged by lowering their base rates as well as interest rates on some products in July and October, last year.
The Financial Services Secretary said that banks really do not have a choice but to follow the insurance or the banking regulators’ diktat on selling insurance products of different companies.
Insurance broking“You either follow the law as laid down by the IRDA and as laid down by the RBI or alternately you move out of the business,” he said.
On the issue of private treaty between some banks and insurance company’s, Takru said, “There are certain problems with the corporate agency model of banks… You have to move away from this model which encourages mis-selling and creates a problem for the consumer.”
He said he will meet the Indian Banks’ Association on January 28 to work out the “nitty-gritty” of how banks can sell insurance policies of different companies.
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