The government is all set to infuse the budgeted capital of Rs 14,000 crore in public sector banks (PSBs) and a decision on who gets how much will be finalised in a day or two.

The announcement by the finance minister P Chidambaram came after a review meeting with public sector bank chiefs in New Delhi on Tuesday where issues including credit growth, non-performing assets and concessional lending were discussed.

The minister pointed that while the preferential allotment of the budgeted capital of Rs 14,000 crore will be completed by this month, a decision on giving out additional capital to PSBs for providing concessional loans, as announced earlier this month, will be taken in the last quarter of this fiscal. “Additional capital will be given to those banks that have performed better than the others on providing concessional loans. This will be known only towards the end of the fiscal and hence, a decision on providing additional capital will be taken only in the last quarter,” the minister said.

The capital infusion will come as a shot in the arm for the banking sector that has been plagued with slowing demand for credit due to high interest rates and poor recovery of loans.

Further, terming the unchecked rise in NPA figures absolutely "unacceptable", Chidambaram has directed all public sector banks (PSBs) to set up a separate vertical to concentrate on recovery of loans especially those that have been written off. "It is the big borrowers who are the bulk defaulters. Recoveries are taking place but it is not good enough. I have asked banks to set up a separate vertical to concentrate on recovery of loans especially prudential write-offs," the finance minister said.

Currently, only State Bank of India (SBI) has a separate vertical that focuses on recovery of prudential write-offs and this, the minister said, needs to be replicated in the other state-run banks as well. Prudential write-offs refer to loans that banks declare non-collectable and these don’t figure in the banks’ balance sheets.

The finance minister reiterated that the top 30 non-performing asset (NPA) accounts of each PSB are being monitored carefully and has warned the wilful defaulters against resorting to forum shopping for delaying recovery by banks.

While persistent NPA figures are posing a threat to the banking industry, Chidambaram said that he is “satisfied” with the overall credit growth. According to Chidambaram, overall credit growth of PSBs went up by 12 percent from June 2012 to June 2013. The minister has also exuded confidence that PSBs would be able to exceed the Rs 7 lakh crore target set for agricultural loan as is the case in the last three years. In addition, housing loans have been on the rise, the minister pointed. “There was a 42 percent growth in housing loans during the first quarter of this fiscal and this went up to 62 percent in the second quarter,” the minister said.

The credit given to micro, small and medium enterprises (MSMEs) has also been satisfactory registering a growth of 26.1 percent in the first quarter compared to 20 percent in the corresponding period last year.

Addressing media persons after the conference, financial services secretary said, "We have worked out the estimates and the approval (from the finance ministry) is likely to come in a day or two following which the funds will be transferred. Preferential allotment of capital will be made."

Takru has clarified that pumping in more capital is a capitalisation exercise and should not be seen as an attempt to increase government shareholding in PSBs. "Once we have infused capital in various banks, they can go in for a qualified institutional placement (QIP) or rights issue if they are in need for more funds to ensure that the government shareholding remains unaltered," he said. For instance, if a PSB, in which a government has 62 percent stake, is offered Rs 6,200 crore, it can go in for a QIP or rights issue for Rs 3,800 crore to as that there is no change in the shareholding levels.

In addition to the said capital, additional capital on concessional lending will be given to banks on the basis of their performance. "A decision on which bank will get how much additional capital will be taken in the last quarter of the year depending on their performance in giving out concessional loans," Takru added.

Refusing to comment on the capital demanded by her bank, SBI chairperson Arundhati Bhattacharya said that a final decision on whether or not to go in for a QIP will be taken within a month.