Chidambaram tells banks to go slow on credit
FM asks state-owned banks to moderate credit growth in commercial real estate, capital market and credit companies, reports Arun Kumar.Updated: Apr 19, 2007, 23:00 IST
Finance Minister P Chidambaram on Thursday asked state-owned banks to moderate credit growth, particularly to commercial real estate, the capital market and credit companies. Addressing chief executives of public sector banks, Chidambaram told them to redirect credit to agriculture, infrastructure and small and medium enterprises.
Raising apprehensions on rising prices and cost of funds, he cautioned banks against raising costly bulk deposits. Chidambaram told the bankers to hold interest rates on home loans of up to Rs 10 lakh.
“We have been told to focus more on home loans of less than Rs 10 lakh, which constitute 80 per cent of our portfolio,” said the chairman of a leading public sector banks who refused to be identified.
He, however, pointed out the guidance to state-owned banks in this regard would have little impact because private players like ICICI Bank and HDFC dominate the home loan market.
Talking to the media after the meeting, Chidambaram said: "We have advised banks that credit growth of about 30 per cent has to be moderated. Therefore, they have to rebalance their portfolios and moderate credit growth to what the RBI calls high-risk sectors” like commercial real estate, capital markets and systemically important credit companies.
The minister told the banks to push credit to the weaker sections and minorities. He said five communities had been identified as minorities and 103 districts where the minority population was more than 25 per cent. The public sector banks have been told to open more branches and the RBI will facilitate this through its clearance mechanism.
"We have urged banks to open new branches in these districts and also urged them to monitor the flow of credit to minorities,” Chidambaram said. He also wanted the banks to enhance lending to the priority sector at the “correct price”.
"Banks have been advised that while keeping their long-term portfolios (in mind), they should protect the interests of home loan borrowers taking loans of Rs 8-10 lakh, to the extent possible," Vinod Rai, secretary (financial sector), finance ministry, said after the meeting.
State Bank of India Chairman OP Bhat told reporters that the bank was looking at 25 per cent growth in the current financial year against 28 per cent in the previous year.
The finance minister asked the Indian Bank Association to make a detailed proposal for infrastructure funding. Bankers fear a mismatch of assets and liabilities in funding infrastructure.
Bankers suggested to the minister that they should be allowed to raise infrastructure bonds, for which government should provide tax incentives or allow them to be treated at par with statutory liquidity ratio instruments.