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FM asks banks to moderate credit growth

Chidambaram also urges banks to open new branches in minorities' districts and to monitor flow of credit to these districts.

business Updated: Apr 19, 2007 12:33 IST

The government on Thursday asked public sector banks to moderate credit growth to high risk sectors like commercial real estate, capital markets and open new branches in 103 minority-dominated districts.

At a meeting with chief executives of PSU banks, Finance Minister P Chidambaram also asked these banks to make available credit at "correct prices" to productive sectors.

He cautioned PSU banks against raising bulk deposits at high cost in the month of February and March.

Chidambaram told reporters "We have advised banks that credit growth of about 30 per cent has to be moderated therefore they have to rebalance their portfolio and moderate credit growth to what RBI calls high-risk sectors like commercial real estate, capital markets and systemically important NBFCs."

FM said he was informed by chairmen of the banks that they have started rebalancing of portfolios in the second half of 2006-07 and will proceed the debt in the first half of this fiscal.

"We have impressed upon them that they have to rebalance their portfolio so that adequate credit at correct prices is available to productive sectors," he said.

He said five communities have been identified as minorities and 103 districts as minority dominated.

"We have urged banks to open new branches in these districts and also urged them to monitor flow of credit to minorities" he said.

Chidambaram said district plans would place special emphasis on lending to minorities.

The Finance Minister said that banks have been cautioned against raising bulk deposits at high cost in the months of February and March, terming this kind of a trend as a vicious circle.

"If banks raise bulk deposits at high cost in February and March this year, they will do it again in February and March next year."

The Indian Banks Association will now evolve guidelines so as banks do not compete with each other on raising bulk deposits at high cost.