No fresh capital for state banks this fiscal

No fresh capital for state banks this fiscal

New Delhi: The government will not infuse fresh capital into public sector banks this fiscal from an already sanctioned World Bank loan of $2 billion (Rs9,300 crore) as bank credit growth has been slow, two officials familiar with the development said.

Consequently, the government asked Parliament to sanction additional expenditure of Rs25,725.22 crore (net cash outgo), which is expected to be “deficit-neutral" and does not include infusion of capital into public sector banks.

According to an official in the finance ministry, who did not want to be named, the supplementary demand for grants of Rs25,725.22 crore would not add to the budget estimate’s total expenditure of Rs10.2 trillion on account of revenue inflows from disinvestment and savings on existing schemes.

The inflow from disinvestment till now has been around Rs3,000 crore and the tight expenditure management would allow the government to transfer savings from other schemes to meet expenditure needs in the supplementary demand for grants.

The Constitution (Article 113) makes it mandatory for the government to approach parliament to clear additional expenditure under different heads.

The government, however, has leeway to transfer savings from one programme to the other or borrow to cover extra expenditure.

For the moment, the supplementary demand for grants are not expected to add to the budget estimate of a Rs4 trillion fiscal deficit, the official said. The government would also not add to its investment in equity of public sector banks this fiscal as bank credit growth has been lacklustre.

In the second quarter of 2009-10, though gross domestic product beat market estimates to grow 7.9% on-year, bank credit grew by 12.6% as compared to deposit growth of 19.8%.

The government has a window of six months up to June 2010 to draw the sanctioned World Bank loan as the multilateral institution’s financial year runs from July to June.