With the economy slowing down, the pressure on state-owned banks is increasing. The finance ministry has indicated that their financial targets, which include credit and deposits among other things, need to be "significantly steep" for 2012-13 and not an incremented increase from the objectives set for the current financial year.
Credit off-take has been moderate in the current fiscal amid high interest rates. Factory output has also remained moderate, showing a contraction of -4.7% in October, 2011.
Finance minister Pranab Mukherjee, while presenting the Budget for 2012-13 announced infusion of Rs 15,888 crore into public sector banks as part of a recapitalisation exercise. The amount will help banks, that have been hit by a liquidity crunch, push credit growth and strengthen their balance sheets in the next fiscal year.
"It is good news for banks and the amount will provide the much required push to the balance sheets and also take care of the credit growth for the fiscal 2012-13," TM Bhasin, chairman and MD, Indian Bank told HT.
An executive with a public sector bank said that while the government has decided to infuse capital in the banks, it has asked them to improve their performance especially in key areas such as savings and deposits, reduction in non performing assets among other things.
The ministry has also decided to go through the finances and performance of each public sector bank with a fine toothcomb.