Banks to get more funds for cheaper bike, white goods loans

The government has decided to enhance capital infusion into the public sector banks over and above what was provided in the budget to enable them to extend more credit to automobile and consumer durables makers to stimulate demand.

"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," the finance ministry said in a statement on Thursday.

The decision to increase the capital infusion was taken at a meeting between finance minister P Chidambaram, Reserve Bank of India governor Raghuram Rajan and economic affairs secretary Arvind Mayaram in New Delhi.

"This amount (Rs14,000 crore provided for capital infusion in the budget) 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-wheelers, consumer durables, etc, at lower rates in order to stimulate demand," the statement said.

It further said 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 said.

The meeting, which lasted for over an hour, discussed credit growth in different sectors. The quantum of additional capital infusion, however, was not disclosed by the government.

Consumer durables, a reflection of demand for manufactured products, include TVs, fridges, washing machines.

The output of consumer durables declined by 9.3 per cent in July against a 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 last year.

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 corresponding period last year.

"At the end of September 2013, growth of gross bank credit stood at about 18 per cent Y-o-Y basis. However, credit growth is sluggish in some sectors leading to conclusion that demand in this sector remains subdued," the ministry's statement said.

"Based on the discussions, government has decided in principle to enhance the amount of capital to be infused in PSU banks."

The decision to enhance additional capital infusion comes ahead of the central bank's board meeting on Friday in Raipur, which would be attended by Mayaram and financial services secretary Rajiv Takru, among others.

India's overall economic growth rate slipped to a decade's low level of 5 per cent in 2012-13.