PM Assures Support to Banks

October 22, 2008	(Be the first to rate this story!)  Loading ...
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Prime Minister Manmohan Singh is learnt to have directed public sector bankers to honour their credit commitments to the industry in general and the infrastructure sector in particular. Addressing an unscheduled meeting with the top PSU bankers late on Monday evening, Mr Singh took stock of the liquidity situation and assured the bankers of all possible support from the government. He has also asked bankers not to take steps which may affect priority sector lending.

Heads of the State Bank of India (SBI), Union Bank of India (UBI), Punjab National Bank (PNB), Bank of India (BoI) and senior finance ministry officials were present at the meeting. Mr Singh left for a three-day visit to Japan and China on Tuesday morning. “There is no reason now for banks to find it difficult to meet their commitments to industry. The situation has completely changed from what it was two weeks ago when the cash reserve ratio (CRR) was 9%. At that time, banks had to put their commitments on hold as there was a paucity of funds. But the problem no longer exists,” said a senior official with a public sector bank who was present at the meet.

The prime minister’s meeting with bankers will help facilitate resumption of lending to major borrowers of India Inc, bankers said. Due to the liquidity crunch, banks had the slammed brakes on such lending. Banks have a cash-deposit ratio of about 10% in most of the cases. On an average, it is pegged at around 9.8%. This means when CRR was 9%, banks were left with just 0.8% of available resources to lend.

CRR is the ratio of the total deposits that the banks have to park with the central bank. This left the banking system with just about Rs 40,000 crore to lend before the CRR cut, making them go slow. With CRR reduced by 250 basis points in a series of steps, the banking system has received Rs 1 lakh crore.

That Mr Singh himself decided to meet bankers directly indicates the importance the government attaches to addressing the financial sector crisis. Usually, it is the finance minister who interacts with chiefs of public sector banks. Despite the steps initiated by the government, it is felt that loans to real estate companies would be under check. “RBI’s view is that banks should be restrained in lending to real estate and follow more stringent norms,” the public sector banker said.

News Published Under:   Banking and Finance |

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