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Mr Bhasin said the MoU with Bajaj Auto paves the way for the bank to lend for three-wheeler purchases. The loans count for meeting priority sector obligations while being safe for the bank, because three-fourths of each loan is guaranteed by the Credit Guarantee Fund Trust for Small and Medium Enterprises. The CGFTSME scheme, conceived by the Government and run by SIDBI, lets banks give loans to small enterprises without insisting on collateral.

Indian Bank expects to finance purchase of a thousand three-wheelers over the next three months. “We will see the initial response and then scale-up,” Mr Bhasin said.

Speaking to presspersons after signing an MoU with Bajaj Auto under which the bank would finance the purchase of Bajaj's three-wheelers, Mr Bhasin said the issue would shore up the bank's tier-I (owned capital, as opposed to capital constituted by long-term loans); the capital adequacy ratio was at 12.9% as on September 30, 2010.

Indian Bank is 80% owned by the Government of India and, hence, a 10% dilution will not threaten the public sector character of the bank