Finmin mulls additional fund infusion of Rs 4-5K cr in banks

Finance Ministry is considering additional capital infusion of Rs 4-5,000 crore in public sector banks for extending cheaper loans to auto and consumer durables buyers.

The ministry is examining the issue extensively and there could be additional fund infusion in excess of Rs 4,000 crore, a senior official said.

This amount will be over and above the Rs 14,000 crore for the public sector banks announced in the Budget for this fiscal, the official added.

The decision to increase the quantum of capital infusion was taken at a meeting between Finance Minister P Chidambaram, RBI Governor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram here last week.

"This amount (Rs 14,000 crore provided for capital infusion in Budget, 2013-14) will be enhanced sufficiently. The additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors such as two-wheeler, consumer durables, etc at lower rates in order to stimulate demand," a Finance Ministry statement had said.
Following the announcement, many banks including State Bank of India, Oriental Bank of Commerce, Indian Overseas Bank have lowered their lending rates for buyers of automobiles and consumer goods.

The ministry had said that the additional fund infusion would help in combating slowdown and boost output.

"While this will bring relief to consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production," it added.

As per the latest industrial output data, the output of the consumer durables sector declined by 9.3 per cent in July, compared to growth of 0.8 per cent in the same month last year. The segment saw a 12 per cent decline in output in April-July compared with growth of 6.1 per cent.

Consumer durables reflect demand for manufactured items and include TVs, fridges, washing machines and so on.

Meanwhile, two-wheeler sales recorded a flat growth of 0.72 per cent in April-August period current fiscal, as against a growth of 6.8 per cent in the same period last year.