Against the backdrop of a slowing GDP growth rate and a drop in inbound investments, finance minister Pranab Mukherjee is set to meet the chiefs of state-owned banks on Tuesday.
It is widely expected that he will nudge the bankers to increase lending to the infrastructure sector, of which the latter have been fighting shy due to their long gestation periods.
India’s gross domestic product (GDP) growth rate for the fiscal 2011-12 clocked in at 6.5% — much below expectations.
Sources say that banks are also likely to be asked to increase their credit growth targets for the current fiscal.
The government would take stock of the capital requirement and overall performance of Indian banks in the wake of their recent ratings downgrade due to rising level of bad assets. Capital requirement for banks is mounting, as implementing the stringent Basel III norms stipulates that they have more funds at their command.
State-owned banks, meanwhile, have increased lending to infrastructure projects with a sanction of about Rs 800-2,000 crore as takeout finance from India Infrastructure Finance Company (IIFCL) for several projects over the last year.
The State Bank of India and its subsidiaries have registered a 70.4% growth in lending to the cash-intense sector, as per official data.
“To once again spur growth, we need credit and banks must be geared up to provide the required funds, it is critical at this juncture,” a senior finance ministry official who did not wish to be identified told HT. Credit growth in the current fiscal is expected to be around 15%-17%, according to analysts. Mukherjee is also expected to receive a report on financial inclusion, a much-hyped exercise of the UPA II government, during his meeting.