*Finance ministry worried about further deterioration in asset quality

The finance ministry has approved a capital infusion of R14,000 crore into state-owned banks in 2011-12 against the projected requirement of R18,000 crore, Union minister of state for finance Namo Narain Meena said on Friday.

Meena added that PSU banks had sought a capital infusion of R19,000 crore in 2012-13. Speaking at the inaugural session of Bancon 2011, Meena said that while banks had posted reasonably good profits in the September quarter, the probability of a further deterioration in asset quality was a concern.

?Recent trends observed in the NPAs of some of the banks are a matter of concern and retail loans require close monitoring,? the minister said. Meena said the risks of deterioration in assets in the infrastructure sector exist though the overall trends do not indicate any systemic problem. ?Gross NPAs of banks have increased from 2.35% at the end of March 2011 to 2.52% by end June 2011 and against the backdrop of high interest rates, chances of a further deterioration cannot be ruled out,? Meena said.

He said private consumption could decelerate due to a tight monetary policy and it was important to shore up investments to sustain growth.

The results of banks had showed a fairly good performance in the September quarter with almost all of them recording a 15% growth in profits, he said. However, the Indian economy needs to brace for a difficult year from a macroeconomic perspective with inflation remaining a challenge. Union finance minister Pranab Mukherjee said the threats facing the global economic recovery can be converted into opportunities for India?s growth.

?The global financial scenario continues to be volatile and fluid. The recent Global Financial Stability report of the International Monetary Fund has stated that the global financial crisis is deepening,? Mukherjee said in a speech read out at Bancon 2011, organised by Indian Banks Association and Indian Overseas Bank.

Mukherjee believes banks in India can play a critical role in this context, because in contrast to the general global financial system, ?the Indian financial system remains well capitalised with moderate levels of leverage, a stable deposit base and relatively safe investments?. Mukherjee noted: ?Banking is bound to see a huge scaleup in the current decade with new operating systems, delivery channels and methods and techniques to manage the risk associated with such a scale-up.?

He added a scaled-up banking system can be the engine for converting physical savings to financial savings, which has the potential to unlock tremendous value for consumers and financial institutions. ?Financial deepening is imperative to meet the vast wholesale banking needs of infrastructure building,? the minister said, adding a paradigm shift in banking systems and technology is possible.