PSU banks to get more funds to lend to auto, cons durables

The Finance Ministry has decided to infuse more funds in public sector banks (PSBs), so that they can offer loans at cheaper rates. North Block has decided to infuse more than the budgeted Rs 14,000 crore into PSBs to help stimulate demand, reports CNBC-TV18's Aakansha Sethi.

The key really is going to be how much of a differential there will be in interest rates if this differential is significant then it could come as good news not just for consumers but also for auto companies and fast moving consumer goods (FMCG) companies.

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Just this morning, the Reserve bank of India (RBI) Governor, the Finance Minister as well as the Department of Economic Affairs secretary Arvind Mayaram held almost a one-hour meeting where they analysed credit growth in various sectors and founded to be sluggish in certain sectors and hence it was decided that there would be additional capital infusion in public sector banks.

"This amount (Rs 14,000 crore provided for capital infusion in Budget) will be enhanced sufficiently. The additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors such as two-wheeler, consumer durables, etc at lower rates in order to stimulate demand," a finance ministry statement said.

It further said the additional fund infusion would help in combating slowdown and boost output. "While this will bring relief to consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production," it added.

With the hike in repo rate, banks have hiked interest rates on auto loans and home loans. So how much of this benefit they will pass on to consumers will remain to be seen. Unless that differential is 1-2 percent it will not impact demand significantly and the finance ministry’s idea is to stimulate demand and in turn stimulate production in order to help this slowdown in growth. So the quantum of interest rates now will be key.

As per the latest industrial output data, the output of the consumer durables sector declined by 9.3 per cent in July, from a growth of 0.8 per cent in the same month last year. The segment saw a 12 per cent decline in output in April-July compared with growth of 6.1 per cent.

Consumer durables, a reflection of demand for manufactured products, include TV, fridge, washing machine.

The two-wheeler sales recorded a flat growth of 0.72 per cent in April-August period current fiscal, as against a growth of 6.8 per cent in the corresponding period last year.