State-owned banks to give report card to FM today

Meeting comes weeks after govt agreed to infuse additional capital into banks

Amid slowing economy, Finance Minister P Chidambaram will review public sector banks’ performance today to assess whether credit is being provided to productive sectors, selected areas are being given a boost and if the lenders are reining in the growth of non-performing assets (NPAs).

He will also take stock of interest rates on non-resident Indian accounts, in focus to take advantage of the rupee’s depreciation.

The meeting comes weeks after the government agreed to infuse additional capital into banks to generate demand in consumer goods.

The meeting will assess how the reduction in lending rates by banks in recent weeks has helped credit offtake in two-wheelers and consumer durables, as well as in other sectors. The public sector banks (PSBs) might be asked to give their estimates on the capital infusion they would need during the year. A provision of Rs 14,000 crore was made in the year’s Budget and the money is likely to be made available by the end of the financial year. Many PSBs, such as State Bank of India, Punjab National Bank, Oriental Bank of Commerce and Indian Overseas Bank, have lowered their lending rates for buyers of automobiles and consumer goods during the festival season. The rates are now in the range of 10.45-10.75% for automobile loans up to three years.

As the output of consumer durables and capital goods declined by 7.6% and 0.8%, respectively, in August, the Centre is expecting that lower interest rates might encourage buyers to shop this festival season, boosting the growth in gross domestic product, which had fallen to a four-year low of 4.4% in April-June this year.

The meeting assumes importance as the festival season is on currently, which is expected to give boost to sales particularly in consumer durables.

However, India Ratings in a recent report had said this would not have much impact on automobile sales, as the overall cost of ownership is high and continues to rise steadily due to the frequent rise in fuel prices.

Officials said the review meeting would also lay emphasis on the interest offered on NRI accounts.

Due to rupee depreciation, the government and the Reserve Bank of India (RBI) were encouraging NRI deposits to attract dollar inflows. RBI Governor Raghuram Rajan had opened a swap window on FCNR accounts. Besides, banks’ performance on overall credit growth, credit growth to medium and small enteprises, the farm sector, minorities, industry and financial inclusion will be discussed.

The rising NPAs of state-owned banks and the measures taken to recover these would be an important item. Emphasis will be on the top 30 NPA accounts in each bank.

Gross NPAs of PSBs had increased to Rs  1.76 lakh crore at the end of the June quarter from Rs 1.55 lakh crore at the end of March 2013.

The economy grew at a decade low of 5% in 2012-13. Independent analysts pegged the growth below even 5% for 2013-14, after the first quarter growth fell to a four-year bottom of 4.4%.