Cash-short companies can look forward to a greater supply of money from which to borrow. As much as Rs. 56,000 crore are expected to be added to the pool of lendable resources of public sector banks over the next three months.
The banks have raised their credit growth target for the remaining months of the current fiscal year to 24 per cent from the earlier 20 per cent. They will be closely watched by the government, which is keen to revive growth in the economy by pushing more credit.
“Credit targets of public sector banks are being revised upward to reflect the needs of the economy in the present difficult situation. Government will closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks,” a Finance Ministry official told HT.
Bankers believe with interest rates easing, demand for credit will also pick up, while banks also have more liquid funds to lend.
The cash reserve ratio — the proportion of deposits banks have to mandatorily park with the central bank—have been reduced by half-a- percentage point to 5 per cent last week. This alone will release an additional Rs 20,000 crore into the system.
In the last three months, the RBI, through several monetary measures, has infused Rs 3,20,000 crore into the system.
Banks will also be reassured by an easing of risk-weightage rules for lending to the housing sector.
MD Mallya, chairman and managing director, Bank of Baroda said that liquidity was not an issue any more.
“We will review our credit target. The earlier target was fixed kept in mind the high inflationary pressures on the economy but now the scenario is different and we will increase our lending figures,” Mallya said.
“Banks will have to meet the revised target by the end of the current fiscal and therefore they will have to significantly step up their lending,” said a senior UCO executive, who did not want to be identified.