Orissa sets terms for doing business with banks

The Orissa government has cracked its whip on the commercial banks which have failed to achieve prescribed norms in priority sector lending and maintaining CD (Credit-Deposit) ratio in the state. The state finance secretary has asked all government departments to stop doing business with these banks.

As per the Reserve Bank of India (RBI) guideline, the priority sector lending should form at least 40 per cent of the net bank credit (NBC). Similarly, the minimum CD ratio of banks should be maintained at 60 per cent.

However, some commercial banks in Orissa are not able to meet these norms despite repeated warning from the state government.

Hence, to force the erring banks to improve their performance, the state finance department has come out with new eligibility guidelines for the government departments to do business with banks.

For the current financial year, only those commercial banks will be eligible to handle the business and deposits of state public sector undertakings (SPSUs) and state level autonomous societies (SLASs) which have maintained CD ratio of at least 55 per cent and achieved priority sector lending of at least 35 per cent during 2010-11.

Presently, only 10 public sector banks- Allahabad Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Bank of Baroda, Indian Bank, Indian Overseas Bank, State Bank of India, State Bank of Travancore and UCO Bank as well as three private banks- Federal Bank, HDFC Bank and Axis Bank meet the eligibility norms prescribed for this fiscal.

The performance criteria for the next fiscal (2012-13) has been tightened further by the finance department. For 2012-13, commercial banks need to maintain CD ratio of at least 60 per cent, achieve priority sector advances of at least 40 per cent and record a minimum achievement of at least 80 per cent of the Annual Credit Plan in 2011-12.

Jugal Kishore Mohapatra, principal secretary (finance), has written to all departmental secretaries to ensure compliance with these norms.

If any SPSU, SLAS, urban local body or development authority has currently given its business to any ineligible bank, it should switch over to an eligible bank. Fixed deposits made in any ineligible bank should be withdrawn on maturity and parked in an eligible bank.

The finance department has also stated that SPSU and SLASs may be permitted to park some of their deposits in the Orissa State Cooperative Bank.

The under-performance of the banks on parameters like CD ratio and priority sector lending targets has resulted in sub-optimal provision credit in many segments of the state economy and this has prompted the state government to put in place a mechanism to incentivise the banks to meet their mandated lending targets.