Plr Cut No Panacea For Poor Offtake: Bankers
The Reserve Bank of Indias slack season credit policy to be announced today is widely expected to provide a signal for reducing interest rates. Many senior bankers are, however, not certain if a reduction in their prime lending rates (PLRs) will have a significant impact on the credit offtake, other things remaining equal.
A more crucial role, it is felt, is of the state of the capital markets in determining the timing of projects and of expansion and diversification plans.
State Bank of India chief general manager S Roychowdhury points out that contrary to the belief that a depressed capital market means greater demand for bank credit, the situation is actually the reverse.
Banks and financial institutions provide only a part of the funds. The rest is raised by the promoters, usually through the capital markets. If the markets are depressed then promoters are unable to raise their share of the financing costs, Roychowdhury adds.
As a result, projects get postponed and expansions or diversification plans are put off: this means low credit offtake from banks and institutions as well.
Former SBI chairman P G Kakodkar, too, had expressed doubts about the importance of PLRs in determining the demand for credit in an economy.
Expectations about a fall in interest rates have arisen largely from recent statements by both finance minister P Chidambaram and RBI governor C Rangarajan, who have suggested that commercial banks should start consider reducing their PLRs.
The credit policy is expected to set the ball rolling by slashing the maximum permissible interest rates on one-year deposits. The RBI may also propose deregulation of interest rates, at least partially.
Union Bank of India, has already reduced its PLR by 50 basis points from 14.5 per cent to 14 per cent following the plea by the finance minister.
Most banks, however, have decided to wait till the credit policy is announced.
Senior bankers, especially those of public sector banks, have also expressed concern about the impact of reduction of prime lending rates on their bottom line.
Credit policy to be unveiled today
Our Banking Bureau Mumbai
The Reserve Bank governor, C Rangarajan will unveil the credit policy at 10.30, today morning, to the chiefs of commercial banks. The policy will thereafter be put on the Internet at 12.30 pm
The policy expected to take steps to spur credit offtake and check the rising inflation is keenly awaited in the context of the fact that there is only a caretaker government. The policy is expected to give a direction to the economy, as the passing of the finance bill is doubtful.
It is felt that the issues facing the Reserve Bank currently are the poor offtake of credit, the excess liquidity in the system, inflation and projects being stuck due to the inability of promoters to bring in their equity contribution.
Bankers feel that the Reserve Bank might reduce the deposit rates and also scrap the reserve requirements on inter bank deposits, which will bring down the cost of liabilities. This in turn will help banks to reduce the lending rate.
A section of the bankers feel that the Reserve Bank should bring down the money supply growth target to 14 per cent from 16 per cent in view of the current excess liquidity, rising inflation and expected surge in foreign inflows.
The address of Reserve Bank on the internet is http: //www.reservebank.com.