At a meeting with the chief executive officers of banks, he said the government will give a subsidy of 35 per cent of the loan amount, so that the borrowers will have to repay only 65 per cent.
Finance Minister P Chidambaram asked the banks to extend 1,50,000 loans to the tsunami-affected people.
At a meeting, he said the government will give a subsidy of 35 per cent of the loan amount, so that the borrowers will have to repay only 65 per cent.
The subsidy will be available for loans up to Rs 5 lakh. The rate of interest for all loans would be 7 per cent per annum and additional 2 per cent subsidy would be available for those with good payment record.
Chidambaram also discussed with the CEOs of the public sector banks issues related to consolidation in the public sector banks, managerial autonomy, corporate governance and progress in credit off-take.
The finance minister sought suggestions from the CEOs on merger, particularly in relations to synergies, human resource restructuring and the broader objective behind the merger.
The ministry is of the view that regional synergy is one of the underlying factors that might lead to mergers of banks situated in similar geography.
These suggestions, sources said, will help in finalising the guidelines for PSU bank mergers expected to be announced in the Budget.
The Reserve Bank of India is already working on standardised norms to facilitate bank mergers.
The guidelines will touch upon financial viability in terms of capital adequacy ratio before and after merger, branch networking and rationalisation and human resource management post merger.
The RBI is also examining ways by which the volatility of share prices before and and after the merger will be analysed. While it will not dictate the merger candidates, these guidelines will ensure smooth merger process.
"It is for the individual bank to take a decision. The government can only act as a facilitator," PS Shenoy, chairman and managing director of Bank of Baroda, said after the meeting.
"We are looking for a bank for possible merger but no decision has been made," he added. The report of the Indian Bank Association on consolidation in the banking sector was discussed at the CEO meeting today. According to sources, it was agreed that economy of scale was important and mergers which are beneficial to the banks should be considered.
The CEOs asked the finance minister to provide tax benefits by amending Section 72A of the Income-Tax Act. Accumulated losses and unabsorbed depreciation of one bank should to set off against the profit of the other bank in case of a merger, they said.
The banks also made a case for tax exemptions for non performing assets and also asked Chidambaram to allow banks to issue tax-saving infrastructure bonds.
The finance minister reviewed the off take of agricultural credit, advances to small enterprises and rural housing.
The performance on lending to the small enterprises was not found to be satisfactory and Chidambaram asked banks to find ways to effectively extend credit to the small enterprises.
In wake of the emphasis being given by the government to enhance technology in banks, the minister also reviewed the progress by banks to become IT enabled and measures taken to improve the quality of human resources.
Also with the ban on fresh recruitment in the Regional Rural Banks being revoked, the meeting reviewed the progress by sponsor banks to train personnel as per their requirements.
Education loans to deserving students and those already enrolled in reputed colleges and universities was taken up along with measures to achieve the target of 2.5 lakh rural housing units in the current year.
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