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Govt To Infuse Capital Into PSU Banks Soon: PC

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Most state-run banks need an infusion of additional capital and a decision will be taken in the next few weeks, finance minister P. Chidambaram said on 15 November.

The minister said government would soon finalise capital infusion for the PSU banks and the beneficiaries would include Indian Overseas Bank, Central Bank of India and Bank of Maharashtra. The government had proposed to inject Rs 15,000 crore of capital in the PSU banks.

Referring to the issue of new banking licences, Chidambaram said he had written to the Reserve Bank to initiate the process of issuing guidelines and start accepting the licences pending approval of the Banking Regulation Amendment Act by Parliament.

"...we have written to the RBI recently urging them to proceed to finalise the guidelines and proceed to receive applications for new banking licences in anticipation of the amendment in the banking regulation act," he told reporters after reviewing the performance of public sector banks.

As per the RBI's draft norms released in August 2011, private sector entities or groups owned and controlled by Indian promoters, with diversified ownership, sound credentials and integrity, and having successful track record of at least 10 years, would be eligible to promote banks.

"We have written to the RBI and hope that the RBI will pick up the thread and finalise the guidelines and start receiving the application," Chidambaram said.

The minister said the "power or the authority" which the RBI wants is already available in the other provisions of the law and with the central bank's own regulations and guidelines for new banking licenses.

"We are only formalising them by amending the banking regulation act. And I have assured the RBI that banking regulation act will indeed be amended, hopefully in the Winter Session (of Parliament), if not in the Winter Session then in the Budget Session," he added.

He further said if RBI proceeds to receive application and process them, even then the first banking licence is not likely to be issued in the next six or eight months.

"So by the time the licence is issued and the banks comes to existence and the banks begin to function, the banks regulation act would have been amended," the Minister said.

The draft norms have pegged the minimum required capital for promoting bank at Rs 500 crore and restrict foreign shareholding at 49 percent for the first 5 years.

Addressing a press conference after meeting heads of the banks, the finance minister said they had suffered a deterioration of non-performing assets and write-offs.
Open to handholding the stressed sectors, the finance minister said government will work out a strategy to assist industry segments reeling under the impact of economic slowdown.
"If the economy improves and growth improves, the sectors (which are not doing well) will recover. But in the meanwhile we will have to do some handholding and try to help these sectors recover", he said while addressing a press conference after meeting the heads of public sector banks in New Delhi.

Govt To Handhold Stressed Sectors: FM
Stating that slowdown is a temporary phenomenon, the minister said the "situation is not alarming" and would improve with recovery and bad loans would become standard accounts.
"A bit of handholding (is needed) to help the sectors or the industry or the unit to tide through this difficult period...and when the economy recovers, these accounts will indeed become standard accounts", he added.
The government will have to look at rising Non-Performing Assets (NPAs) sector wise and find ways and means to help them, he said, adding the "NPA is reflection of the slowdown in the economy".
The NPAs of the public sector banking group has increased by 0.98 per cent in the one-year period ending September 2012 mainly on account of the stress being faced in sectors like infrastructure, steel, construction, textile, food process and telecom infrastructure, the minister said.
On the positive side, Chidambaram said housing and automobile sectors have been doing well on back of decline in EMIs.
India's economic growth rate has slipped to nine-year low of 6.5 per cent in 2011-12 and the Reserve Bank of India (RBI) expects it to decline further to 5.8 per cent in the current fiscal. The first quarter of 2012-13 recorded a growth rate of 5.5 per cent, while the figures for the second quarter will be released later in the month.