Taking stock: Pranab to meet bank chiefs on July 8

Finance minister Pranab Mukherjee will meet the chiefs of public sector banks on July 8 to take stock of the current environment of high lending rates, which is hampering the credit need of the industry and threatening to slow down economic growth.

Though the official agenda of the meeting is likely to be reviewing the performance of banks last year and examining the plans for this year, bankers said since the macroeconomic scenario had significantly changed since the beginning of the current financial year, the ministry would review the present situation as well. Most of the banks are yet to receive a detailed agenda of the meeting. They have, however, been informed about the meeting by the finance ministry.

The growth in loans during the April-June period was significantly lower at around Rs 42,000 crore, compared to Rs 1.23 lakh crore during the same period of the previous financial year. This was owing to a sharp increase in the lending rates, following successive increases in policy rates. While the base rate of banks rose 200-250 basis points (bps) since July last year, the repo rate rose 250 bps since March 2010.

On an annual basis, credit growth moderated from 21.3 per cent in March to 20.6 per cent in early June, but remained above the Reserve Bank of India's (RBI) indicative projection of 19 per cent for 2011-12.

The central bank had increased the policy rates 10 times in the last 15 months to tackle inflation. However, since inflation is still high, analysts and economists expect RBI to continue with the rate increase cycle.

Government-owned banks are now in discussions with finance ministry officials to finalise the statement of intent for 2011-12. The statement of intent is a document through which banks indicate their target for the year on various parameters like credit growth, low cost-deposit growth, net interest margins and financial inclusion plans.