FM asks PSBs to ''appropriately'' price credit; Banks say yes

New Delhi, Nov 4 (UNI) Finance Minister P Chidambaram today asked Public Sector Banks(PSBs) to price credit at an "appropriate rate" with the government having pumped adequate liquidity into the system and said that he has received a "positive response" from them.
Addressing media persons after his quarterly meeting with Chief Executives of PSBs, Mr Chidambaram repeatedly denied that he had issued any directive to these Banks to cut interest rates.
Mr Chidambaram said The Indian Banks Association(IBA)- which is the voice of the Bank managements--has assured him that it will reflect on the matter, namely the demand for rate cuts.
The Finance Minister elaborated that there were three steps relating to credit. The first was provision of adequate liquidity, the second of its appropriate pricing and the third relating to credit delivery.
The government having provided adequate liquidity by way of CRR cut totaling 350 bps, repo rate by 150 bps and SLR by 100 bps, it was now for the Banks to provide appropriately priced credit.
The implication of the Finance Minister's remarks was that interest rates need to be in conformity with the abundance of liquidity so that credit off take can increase.
He said the PSBs would suitably adjust both lending and deposit rates.
The Finance Minister said liquidity needs to be monitored on a regular basis and if it becomes known to the government that there was need for a still higher dose of liquidity, then the RBI would act appropriately.
Asked whether the Finance Ministry would also talk to the private banks to review the interest rates situation and credit delivery, Mr Chidambaram said Finance Secretary Arun Ramanathan has called a meeting of the private and foreign banks tomorrow to discuss the issue.
Mr Chidambaram gave a categorical assurance that the housing and Small and Medium Enterprises (SMEs) sectors would be provided adequate finance, these being the two sectors which are generators of high employment.
Mr Chidambaram said the RBI would soon take a decision on extending a line of credit of Rs10,000 crore to the National Housing Bank and an equal amount of line of credit to SIDBI to ensure that adequate funds are available for the housing and SME sectors.
"The demand for credit is higher and bankers are feeling the pressure", Mr Chidambaram said .
He said he has sought from them a fortnightly report on the credit growth.
"We are monitoring the situation on a 24 by 7 basis," he remarked.
He said the Banks have been asked to lend to Mutual Funds at reasonable rates and to use the new window that has been created recently in this regard.
Mr Chidambaram said dollar availability will not be a problem as the RBI has increased FCNR (Foreign Currency Non- Resident) deposit accounts and NRE (Non-Resident External) accounts. ''The RBI is closely watching the situation,'' Mr Chidambaram said.
Mr Chidambaram said the Banks would have to assess the creditworthiness of borrowers and projects. Other than this, it was necessary that all sectors must get adequate credit at an appropriate rate.
He said the impact of enhanced liquidity on the economy needs to be watched.
The Finance Minister said there was no significant increase in the second quarter of the NPA level.
On capitalisation of Banks, Mr Chidambaram said except five PSBs most banks have a CRAR of 12 per cent. The government would want these five Banks also to reach a CRAR of 12 per cent, which may require that they borrow from the market.
Talking about Action Taken on the last meeting of PSBs with him, Mr Chidambaram said all details relating to the farm loan waiver scheme have been completed.
He said all Banks have returned back jewelry and ornaments that are due to the farmers covered under the scheme.
Mr Chidambaram said he has conveyed to the Bankers concerns expressed by the Corporate sector, which were conveyed to him and the Prime Minister in their meetings yesterday.
Mr Chidambaram said it was extremely important to ensure adequate credit to the reality sector as it was an important driver of growth. He said in some economies it's contribution to GDP was as high as 50 per cent.
The Finance Minister exuded confidence that the target for agricultural credit of Rs 2,40,000 crore for the current fiscal would be achieved. This is apart from the lending by the Co-operative Banks and Regional Rural Banks.
He said it was absolutely essential to know where lending was taking place. This varies week on week basis.
For instance, in the week ended October 10, deposits were to the tune of Rs 27,000 crore and advances of the order of Rs 65,000 crores.
However, in the week ended October 24, 2008, deposits were of the order of Rs 16,000 crores and advances of the magnitude of Rs 8,000 crore. The situation relating to credit delivery thus requires close monitoring, he said.