The government, aiming to revive growth, plans to closely monitor the pattern of credit flow to different sectors including infrastructure, housing, automobiles and small and medium enterprises. While that happens, banks are gearing to reduce interest rates.
"We are keeping a close watch on the credit flow to various sectors from banks, there is no issue with lending at this juncture," a government official, who asked not to be identified, told Hindustan Times.
With GDP growth dropping to less-than-expected 5.3 per cent in the third quarter for the current fiscal year, the government has cast its eyes on boosting credit to cash-starved firms.
Bankers say infrastructure investments must pick up for credit growth, though there is no liquidity shortage as such.
“We are studying the situation and a decision on further lowering rates would be taken on the dynamics of the economy,” said Bank of Baroda’s chairman and managing director (CMD) M.D. Mallya, adding that a lot depends on demand picking up.
Bank of Maharashtra’s CMD Allen C.A. Pereira added that his bank would also increase the credit growth target for 2009-10.
{{/usCountry}}Bank of Maharashtra’s CMD Allen C.A. Pereira added that his bank would also increase the credit growth target for 2009-10.
{{/usCountry}}Banks have registered a 24 per cent year-on-year credit growth for the current fiscal in data released so far. However, certain segments like housing and automobiles have seen a slump. In housing, credit growth has dropped by 8.8 per cent year-on-year in April-December 2008.
The government is also moving to spruce up bank balance sheets to lending is not hampered for want of a capital cushion and maintain the capital adequacy ratio at a minimum of 12 per cent of risk-weighted assets. It plans to spend Rs. 18,000 crore.
State-owned UCO Bank, Central Bank of India and Vijaya Bank have already been recapitalised, while others like United Bank of India, Dena Bank and Bank of Maharashtra may also get a shot in the arm by the end of March.