Now, banks freeze retail loans | india | Hindustan Times
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Now, banks freeze retail loans

india Updated: Oct 08, 2008 21:54 IST

Funds-starved banks are beginning to stop disbursement of retail loans too, after most banks froze large loans to companies about a couple of months back.

An acute funds shortage has gripped the banking system in the aftermath of a global credit squeeze. About 40-odd banks have been borrowing over Rs 60,000 crore of overnight money every day from the Reserve Bank of India (RBI) for more than a week now.

A few mid-sized public sector banks have already decided to stop retail loans and even hold back disbursements in some cases where loans have already been sanctioned.

Banks are now only focusing on priority sector loans other than home loans. These include loans to exporters and farmers.

“The liquidity (funds availability) situation is highly uncertain,” said an executive director with a Mumbai-based public sector bank. “There are no signs of liquidity improving even after the 50 basis points cut in the cash reserve ratio (CRR) takes effect on October 11.”

Funds have become scarce and also very expensive, causing aversion among lenders to commit loan disbursements now.

The reduction in the proportion of deposits that banks have to set aside as reserves is not seen helping much. Bankers say it has only partially offset the sucking out of rupee funds by the RBI as it sells dollars to prevent a sharper fall in the value of the rupee against the US currency.

“Only banks that depend on borrowed funds for re-lending will resort to delaying disbursals,” K C Chakrabarty, chairman, Punjab National Bank, had recently said.