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Banks woo enriched Govt staff

business Updated: Mar 10, 2009 20:51 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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They go where the cash is – and more so in a market where cash is king.

Banks, squeezed between low deposit mobilization and poor credit offtake, are wooing government employees by offering them a slew of schemes to utilise their pay commission arrears as bankers struggle to achieve targets by the month-end.

In addition to the salary hikes after the implementation of the Sixth Pay Commission, the Centre last month further increased the dearness allowance – linked to inflation and cost of living – for government employees to 22 per cent of basic salary, up from the 16 per cent.

There are about 50 lakh central government employees, apart from about 1 crore employed in the public sector.

“We are looking at the government employees as potential customers as their jobs are secure and to add to that, they have also got salary hikes,” J.M. Garg, chairman and managing director, Corporation Bank, told Hindustan Times.

The hitherto glamorous would-be customers from the private sector with chunkier disposable incomes in hand are no longer being aggressively wooed by the banking industry.

A banker said with the job uncertainty rising in the private sector, their repayment capacity is also in question. “There is immense uncertainty and fear of job loss or salaries being cut and amid this, there is no demand for credit especially in sectors like housing and automobiles,” he said.

Public sector banks have reset their credit growth target to 24 per cent as against 20 per cent fixed in the beginning of the current fiscal.

With the GDP growth rate dropping to 5.3 per cent for the third quarter of the current fiscal, pressure is mounting on the banking industry to increase its lending to boost sagging economic growth.

However, though the benchmark prime lending rate (BPLR) has consistently eased since October, 2008, demand for credit has not increased substantially. Banks need ample cash, safe customers and a manageable cost of deposits to meet lending targets.