Capital infusion in banks could turn out to be also a function of how serious they are about implementing the programmes for financial inclusion. The finance ministry will rank the banks on the index of financial inclusion and use it as one of the criteria while providing them fresh capital.

According to an official source, the scope of the soon-to-be-launched financial inclusion index would be expanded to include financial inclusion performance rating for banks themselves. The index was originally intended to rank various geographical areas on the basis of access to financial services.

Since April this year, the government has infused Rs 8,911 crore in public sector banks in a bid to shore up their capital base. Another Rs 7,500 crore would be infused by the end of this fiscal, and the financial inclusion yardstick would now be a key determinant in fixing the quantum of funds each bank would get.

A senior finance ministry official told FE: ?We are currently working with Crisil to include ranking parameters for banks in the index.?

Various parameters including the number of no-frill accounts opened by the bank, credit extended to priority sector and banking services extended in the unbanked blocks will be used to rank the banks. ?While in case of some banks like IDBI we cannot take lending to sectors like agriculture as a deciding factor for capital infusion, other banks will have to take an additional effort to further the cause of financial inclusion. Such efforts would be incentivised,? the official added.

The central government in currently in talks with the World Bank for a loan of $1.2 billion to recapitalise some of the public sector banks. Analysts point out that the quantum of recapitalisation will be key to the growth of the 27 PSBs in the country that account for more than three quarters of the lending in the country.

?The government?s limited resources and regulations that necessitate government shareholding of at least 51% have partly constrained the growth plans of public sector banks. These banks could now benefit from the Rs 16,500 crore recapitalisation programme for increasing their capital adequacy ratio to a minimum of 11%. This step is part of the government?s measures to ensure sustained availability of credit in India,? said rating agency Standard and Poor?s in a recent note.

The finance ministry and the central bank expect the proposed revision of the index to help their policy formulation to integrate a larger section of the population with the formal financial markets.

?A lot has changed in the recent years and banks do understand the importance of the financial inclusion initiatives. While some banks may have missed their priority sector lending targets, every one is putting in efforts to stick to the targets,? said Union Bank chairman MV Nair.

While larger banks like SBI and PNB lead the financial inclusion drive, others are catching up. Corporation Bank which had aggressively pushed the banking correspondents model has already established ?branch-less banking facilities’ in more than 1,200 locations. SBI plans to extend its services to 11,943 unbanked villages in this financial year.

RBI deputy governor KC Chakrabarty has recently pointed out that PNB has the most ambitious financial inclusion plan in place.