In yet another move aimed at boosting investments and steering the country out of the economic slowdown, the Union cabinet will consider a proposal to pump Rs. 12,000 crore into public sector banks on Thursday.
This infusion of fresh capital into banks is aimed at facilitating distribution of loans to industries and corporate firms.
A week after Prime Minister Manmohan Singh formed the Cabinet Committee on Investments, inducting 15 out of 32 cabinet ministers, it is all set to consider the recapitalisation of public sector banks such as SBI, Punjab National Bank and Bank of Baroda.
While the cabinet note mentions that these banks would remain compliant with strict capital adequacy, it also underlines that the additional fund would meet the credit needs of the economy's productive sector - which is reeling under a slowdown.
The move comes in the backdrop of a warning by Fitch, a global credit rating agency, that it would downgrade India's sovereign rating in light of the economy's slow rate of growth, high inflation and yawning fiscal deficit. A low rating downgrade may add to the difficulty level of Indian corporates in getting foreign loans. Top government sources said the move is also intended to send a signal that the government wants to ease the credit flow for investors.
Desperate to revive the economy and improve the growth rate, which has remained between 5.2% and 5.5% in the first three quarters of 2012, the PM has emphasised on the need to enhance industrial production through fresh investments.