The government is set to pump in more capital into public sector banks over and above the budgeted Rs 14,000 crore to help boost demand in the economy
GN Bureau | October 3, 2013
In another desperate measure to boost demand and enhance investment activity, the government has decided to inject more capital into the public sector banks (PSBs) over and above the sum of Rs 14,000 crore announced in the 2013-14 budget. However, the government is yet to decide on the additional capital.
The move is likely to help restore various sectors including automobile and consumer durables on the growth track. The announcement was made on Thursday after a meeting between finance minister P Chidambaram, reserve bank of India (RBI) governor Raghuram Rajan and economic affairs secretary Arvind Mayaram.
"The central government has decided in principle to enhance the amount of capital to be infused into public sector banks. It may be recalled that in the budget for 2013-14, a sum of Rs. 14,000 crore was provided for capital infusion. This amount will be enhanced sufficiently," the finance ministry said in a statement.
"The additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors such as two wheelers, consumer durables etc, at lower rates in order to stimulate demand. While this will bring relief to the consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production," the statement further said.
During the meeting, the fall in credit growth in certain sectors was taken up. Despite gross bank credit registering a year-on-year jump of 18 percent at the end of September 2013, demand for credit in certain sectors has slumped.
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