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| FM may tell banks to ensure fund flow | |
| Prashant K. Sahu / New Delhi November 4, 2008, 0:10 IST | |
Finance Minister P Chidambaram is likely to advise public sector banks to ensure adequate financing support to industrial sectors that are facing a liquidity crunch. The aim is to ensure that existing lines of credit are supported and rollovers given to sectors under stress.
Chidambaram is meeting the bankers on Tuesday. The meeting comes in the backdrop of succesive rounds of monetary measures, including two surprise repo rate cuts, by the central bank and other measures taken by the government to ease the situation.
However, with banks not yet having cut interest rates, the finance ministry sources suggest that banks may be advised to do more to pass on lower rates to customers. The Indian industry has been consistent in its demand for cheaper funds in order to meet current and future business expansion plans.
The Tuesday meeting will see Chidambaram evaluate the second-quarter performance of state-owned banks and their response to the recent steps taken to ease liquidity in the Indian financial system.
The banks will also be asked to explain the steps they have taken to lend more funds to companies, mutual funds, non-banking finance companies (NBFCs) and housing finance companies, which have been hit by the liquidity crunch.
The recent liquidity enhancment measures taken by the Reserve Bank of India include relaxation in Statutory Liquidity Ratio to allow banks to facilitate up to 1.5 per cent of their net time and demand liabilities to meet funding requirements of NBFCs and mutual funds. Similarly, banks have also been allowed to borrow funds from their overseas branches and given a special refinance facility up to 1 per cent of their net demand and time liabilities.
The ministry has also asked bankers to suggest steps needed to be taken to meet export credit requirement of small and medium enterprises and optimum utilisation of dollars purchased from the domestic market. Among other issues, Chidambram will discuss credit growth and capital adequacy in the medium term for each bank. The banks have been asked to assess their capital requirements.
According to estimates of the ministry, the risk-weighted assets (RWAs) of all PSBs stood at Rs 20,07,162 crore. Assuming incremental growth of 25 per cent per annum, RWAs of these banks are estimated to be Rs 25,08,956 crore as of March 2009, Rs 31,36,199 crore in March 2010 and Rs 39,20,248 crore in March 2011. “To maintain a healthier Capital Adequacy Ratio (CAR) of 12 per cent, the public sector banks would need to augment capital,” sources said. The average CAR of these banks stood at 12.3 per cent as of March 2008.
The meeting will also discuss the asset quality in sensitive sectors like commercial real estate, personal loans, including credit card receivable, systematically important NBFCs and capital markets. The gross non-performing assets (NPAs) of the public sector banks have grown by about Rs 1,000 crore between March 2007 and March 2008. The ministry has advised caution to banks in this regard.
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