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A top Finance Ministry official said on Saturday that additional capital infusion (over and above the Rs 14,000 crore sanctioned recently) into public sector banks will depend on their performance on the loans front, especially retail loans.
Rajiv Takru, Secretary, Department of Financial Services, also ruled out tapping the World Bank for infusing capital into the public sector banks (PSBs).
The observation on additional capital comes in the backdrop of the government wanting public sector banks (PSBs) to lend more to the retail – auto and housing – segment at cheaper rates.
While banks have cut or waived the processing fee on retail loans for the ongoing festival season, they have held back from cutting lending rates. Reason: Banks are already lending at, or slightly above, their minimum lending rate, also known as the base rate.
On the sidelines of an infrastructure summit jointly organised by IIFC (UK) Ltd and FICCI, Takru said the performance of PSBs up to January-end on the loans front will be considered for further capital infusion.
Takru underscored that banks are free to lend to the segments they chose to. However, the risk associated with lending to the retail segment is less.
Twin objectives
According Reserve Bank of India’s sectoral deployment of credit data, as on September 20, the banking system has seen an 18 per cent year-on-year growth in retail loans against 13 per cent as on September 21, 2012.
The retail loan growth has been driven by demand for loans in housing and consumer durables segments. Demand for vehicle loans, however, has slowed.
As part of its plan to infuse capital aggregating to Rs 14,000 crore in public sector banks, the Government recently allocated Rs 2,000 crore to State Bank of India and Rs 1,800 crore each to IDBI Bank and Central Bank of India.
According to a Finance Ministry statement issued on October 23, the “capital infusion is done with the twin objective of adequately meeting the credit requirement of the productive sectors of the economy as well as to maintain regulatory capital adequacy ratios.”
When asked whether the Government would tap the World Bank for infusing capital into PSBs, Takru emphatically said: “Absolutely not. We have already given them Rs 14,000 crore and we will give them more….We have enough money of our own to give to Indian banks”. Explaining the nitty-gritty involved in the capitalisation exercise, Takru said “There is a procedure. First the board has to meet…After the board meets, they have to call an emergency general body meeting (EGM).”
After the EGM, there is a second board meeting and then the capitalisation exercise is complete. As far as the ministry is concerned the orders (for capitalisation of PSBs) are out, the Secretary said.
Meanwhile, Harsh Kumar Bhanwala, Executive Director, India Infrastructure Finance Company Ltd (IIFCL), said his company will approach the RBI for extending the validity of the central bank’s $5 billion line of credit to IIFC (UK) Ltd for a further period of one year – from March-end 2016 to March-end 2017.
IIFC (UK) is a wholly-owned offshore subsidiary of IIFCL.
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