Banks hit by slowdown; government to infuse capital

The slowdown in economic growth has hit the performance of Indian banks, resulting in a sharp increase in bad loans, Finance Minister P. Chidambaram said Thursday, adding that the government would soon infuse capital into the lenders.

“NPA (non perfoming assets) has increased. This is the reflection of the slowdown in the economy, and reflection of some sectors which are under stress,” Chidambaram said at a press conference after meeting heads of public sector banks and financial institutions here.

Chidambaram said non-performing assets (NPAs), or bad loans, of the public sector banks increased by 0.98 percent at the end of the second quarter of the current financial year from the level of September-end 2011.

The finance minister said the sectors like infrastructure, steel, construction, textiles, food processing and telecom were in stress and largely responsible for the increase in NPAs of the public sector banks.

“These are the natural reflection of the slowdown of the economy,” he said.

Chidambaram said the government would work out a strategy to assist the industries which are in distress.

“If the economy improves and growth improves, these sectors will recover, but in the meanwhile we will have to do some handholding and try to help these sectors recover,” he said.

Chidambaram said most public sector banks required infusion of additional capital and the government would take a decision on this in a couple of weeks.

He said top three banks which required immediate infusion of capital were – Indian Overseas Bank, Central Bank of India and Bank of Maharashtra.

“We have a budgetary provision and will allocate the capital to the banks,” he said.

In the union budget for 2012-13 announced in March, the government has made a provision of Rs.15,000 crore for infusion of capital in the public sector banks.

On the issue of new bank licences, Chidambaram said he had written to the Reserve Bank of India (RBI) to initiate the process of issuing guidelines.

“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,” he said.

The finance minister said the Banking Regulation Act would be amended either in the winter session of parliament, which starts from Nov 22, or in the Budget session next year.

“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. If not in the winter session, then in the Budget session,” he said.

The finance minister expressed the hope that India’s economic growth will rebound soon. “Slowdown in the economy is not a permanent slowdown. It is a temporary slowdown.”