Bankers welcome CRR, SLR leeway on infra loans

Meets old demand; SBI says it welcomes time-bound consolidation with other lenders

Top bankers have welcomed the finance minister’s announcement in the Union Budget on infrastructure loans. It has met an old demand.

The minister said banks would be exempted from maintaining the cash reserve ratio (CRR), statutory liquidity ratio (SLR) and priority sector lending target on funds raised to finance infra loans.

CRR is the proportion of their deposits that banks need to keep with the Reserve Bank of India; they get no interest on these. Banks also have to invest minimum 22.5 per cent of their net demand and time liabilities in government securities, known as the SLR.

“Permission to raise long-term funds for lending (this way) to the infrastructure sector and setting up of six new Debt Recovery Tribunals for speedy recovery of stressed assets addressed long-standing demands of the banking industry,” said K R Kamath, chairman and managing director of Punjab National Bank, also chairman of Indian Banks’ Association.

Banks are mandated to maintain a CRR of four per cent of their deposits, 22.5 per cent for SLR and have to extend 40 per cent of the previous year’s net credit offtake to the priority sector.

Arundhati Bhattacharya, head of State Bank of India, the country’s largest lender, said the steps announced by the government will prevent undue stress in the banking system.

“Allowing banks to issue long-term bonds without recourse to statutory pre-emption (CRR/SLR) for financing infrastructure is a positive step. Allowing infrae loans to be given for longer periods matching the life of the asset (25x4 structure) is a big positive. It will prevent undue stress in repayment of infra loans and will also reduce user charges,” she said.

Though leeway on the regulatory requirements was an old demand of banks, RBI had refrained from passing on the benefit as it was not comfortable with the high exposure of lenders to the infra sector.

The slow progress in infra project implementation over recent years, for several reasons like land acquisition and environmental clearances, have increased the stress on banks’ books. Infrastructure is one of the five sectors identified by RBI as stressed. The others are iron and steel, textiles, aviation, and mining.

Apart from rising stress, high exposure to core sectors also pose asset-liability mismatch problems for banks. According to RBI data, the gap between liabilities and assets was widest in the shortest maturity bucket.

Bankers have also welcomed the consolidation proposal of the finance minister. “There have been some suggestions for consolidation of public sector banks. Government, in principle, agrees to consider these suggestions,” Finance Minister Arun Jaitley said during his Budget speech on Thursday.

“Bank consolidation in a time-bound manner is a welcome move,” said SBI’s Bhattacharya. SBI had started the process of consolidating its associate banks in 2007, when it announced merger with itself of State Bank of Saurashtra.

Then, in 2009, it merged State Bank of Indore.

The previous government also supported the idea but had said banks’ board should take the initiative and the government would refrain from nudging them.