The government has decided to enhance capital infusion into the Public Sector (PSU) banks over and above what was provided in the budget to enable them to extend more credit to auto and consumer durables sectors to stimulate demand and combat slowdown.
The decision to increase the quantum of capital infusion was taken at a meeting between Finance Minister P Chidambaram, Reserve Bank of India (RBI) Governor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram in the national capital.
“This amount (Rs 14,000 crore provided for capital infusion in 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-wheeler, consumer durables, etc at lower rates in order to stimulate demand,” a finance ministry 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 added.
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 TV, fridge, washing machine.
According to the latest data, the output of the consumer durables sector declined by 9.3 per cent in July, from 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.
The 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 finance ministry’s statement said.
