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| No top-up for economy's 'life blood' |
| BS Reporter / Jul 07, 2009, 04:09 IST |
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Recapitalising banks remains only an intent; interest subsidy offered across sectors
Finance Minister Pranab Mukherjee presented the broad contours of the government’s strategy for banks. Though the statement was limited to public sector players, there were few concrete steps to strengthen the financial sector, which he dubbed as the life blood of the economy.
There was a statement of intent on capital infusion in public sector banks and insurance companies, but no allocation. Market players pointed out more at misses, such as lack of clarity on pension and insurance Bills, than the new measures.
Over the last six months, the government has repeatedly spoken about capital infusion in 17-18 public sector banks, but has failed to provide details. Banks such as IDBI Bank, Vijaya Bank and Bank of Maharashtra were expected to be taken up for the next round of recapitalisation.
“The government has already provided funds to some banks and we have been assured (of funding),” said Bank of Maharashtra Executive Director MG Sanghvi. The Pune-headquartered bank has sought Rs 1,500 crore over three years.
Similarly, the finance minister mentioned about financial inclusion, but did little beyond announcing the setting up of a sub-committee of the State Level Bankers’ Committee that would list un-banked or under-banked districts and prepare an action plan to cover all regions over three years. He earmarked Rs 100 crore as one-time grant for providing at least one centre, or point of sales, in each unbanked block of the country.
A budgetary allocation of Rs 1,542 crore has been made for buying the shares held by the Reserve Bank of India (RBI) in National Bank for Agriculture and Rural Development and National Housing Bank (NHB). In addition, Mukherjee announced an allocation of Rs 2,000 crore to NHB from the shortfall in priority sector lending of commercial banks. The funds are expected to boost the resource base of NHB for refinance operations in the rural housing sector. Similarly, Rs 4,000 crore has been provided to Small Industries Development Bank of India for lending to small and medium enterprises.
But Mukherjee has used the interest subvention route across sectors — from farm loans to exports to low-cost housing. The move is a result of the RBI’s message to the government that as a majority owner of public sector banks, it can implement social sector schemes through them as long as there’s a budgetary allocation.
So, farmers who were entitled to 2 per cent subvention would get an additional 1 per cent subsidy if they repaid on time. Similarly, the Budget announced an interest subsidy for poor households for loans up to Rs 1 lakh under the National Rural Livelihood Mission. Also, students from economically weaker sections would get full interest subsidy to pursue approved courses.
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