FM to seek updates on sensitive sector loans

Finance Minister P Chidambaram will seek information from chairmen of public sector banks on the extent of reduction in their exposure to sensitive sectors such as real estate, the impact of increased recourse to high-cost short-term bulk deposits in March 2007 and also capital requirements in the light of the banks' growth plans. The finance minister is slated to meet public sector bank chiefs on April 19.

Opening of more bank branches in minority dominated districts for increased flow of bank funds to minority communities is also likely to be discussed, banking sources said.

"The finance minister wants to know what steps banks have taken since January 31, when the RBI (Reserve Bank of India) raised the provisioning requirements on loans to sensitive sectors such as the capital market, real estate, systemically important NBFCs (non-banking financial companies), loans against credit cards and personal loans, to rebalance their portfolios," said a senior public sector bank official.

The central bank had expressed concerns about the flow of credit to these sectors and had raised the provisioning on standard loans to sensitive sectors to 2 per cent.

In March, banks had aggressively chased bulk deposits to shore up their balance-sheets and meet lending targets. The finance minister is expected to call for details on the "rate race" for deposits considering its implications on the asset liability position and profitability of banks, the sources said. Banks had even offered 14-15 per cent interest on short-term deposits of up to 90 days.

The finance minister is also likely to take up the matter of targeted lending to minorities in keeping with the Prime Minister's New 15-Point Programme for Welfare of Minorities. Banks had earlier debunked the government's proposal to earmark 6 per cent of their total loans for minority communities. "Banks may be asked to increase the number of branches in minority dominated districts instead," said a senior official.