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Finance minister Arun Jaitley. The Rs2.11 trillion bank recapitalisation plan is aimed at reviving private investment to propel growth in the Indian economy and create jobs. File photo: Mint
Finance minister Arun Jaitley. The Rs2.11 trillion bank recapitalisation plan is aimed at reviving private investment to propel growth in the Indian economy and create jobs. File photo: Mint

Arun Jaitley says more capital will push PSU banks to hike MSME credit

An increased credit flow to MSMEs under the bank recapitalisation plan will fire up the 'third engine' of private investment, says Arun Jaitley

Gurugram: Finance minister Arun Jaitley on Sunday said more capital for state-owned banks will prompt the public sector banks (PSBs) to increase credit flow to micro, small and medium enterprises (MSMEs) so that the ‘third engine’ of private investment is fired up to propel growth and create jobs.

Last month, the government had unveiled a whopping Rs2.11 trillion bank recapitalisation plan to strengthen NPA-hit PSU banks, which includes recapitalisation bonds, budgetary support and equity dilution. As for the engines of growth, there has been a significant increase in public investment and FDI inflows, but the private investment has continued to lag.

“If you look at the big picture of the economy where governments are spending a lot of public money, a lot of foreign investment is coming in. We need the third engine (private investment) also to fire and a robust private sector and MSME sector so that the optimum growth rate which we have the potential for can be reached," Jaitley said in his address to top officials at the first PSB Manthan in Gurugram.

He said one of the focus areas banks have taken up is to support MSMEs in the first instance because the sector creating jobs and giving boost to the economy has no access to international finance or bond market.

Jaitley said the government has decided to put in more capital through bonds and banks’ equity expansion and “therefore, it is the country which is virtually going to pay to keep the banking system in good health".

He assured the bankers who gathered in Gurugram that “you won’t find us interfering" in commercial transactions, but “when the system is making all these changes and all these monetary contributions in order to strengthen the banking system, we want robust public sector banking system so that your ability to support growth itself increases".

Non-performing assets of PSBs have increased to Rs7.33 trillions as of June 2017, from Rs2.78 trillion in March 2015. In the last three-and-a-half years, the government pumped in more than Rs51,000 crore capital in public sector banks.

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