Boost deposits, shuffle your loans: FM
P Chidambaram asks bankers to boost deposit growth to match high rates of lending , reports Arun Kumar.india Updated: Nov 06, 2006 21:15 IST
Finance Minister P Chidambaram asked bankers on Monday to boost deposit growth to match high rates of lending and also asked them to shuffle their loan portfolios to help industry and infrastructure, away from a current bias that favours heady growth in credit cards and home loans.
With an emerging mismatch between deposit and credit growth rates, the minister expressed concern over an impending liquidity crunch and advised banks to focus on deposit mobilization, for which a clear signal came last week in the Reserve Bank's mid-year credit policy.
At a meeting with chairmen of public sector banks here today, the minister said credit disbursement to productive sectors such as agriculture, manufacturing, infrastructure and small-scale industries should be encouraged.
On the high rate of growth in credit, Chidambaram said home loans and credit cards were witnessing very high credit growth. As against the average credit growth rate of 30 per cent, sectors such as housing, commercial real estate and personal loans have witnessed nearly 100 per cent growth.
“I advise banks to re-balance their portfolios to ensure productive sectors are not denied credit... Otherwise there will be crunch of liquidity... Re-balancing is a pre-emptive step,” Chidambaram said after the meeting.
Officials said the minister asked the Indian Banks Association to look into how banks can raise their deposits, while assuring of policy measures to help this from both the RBI and the Finance Ministry.
Overall, deposit growth is not keeping pace with credit growth, the minister said.
To sustain a credit growth of 30 per cent, it is imperative that deposits also increase at least by 25-30 per cent. Currently deposit growth is around 20 per cent while credit growth is 10 percentage points higher. Given the current trend, credit growth in the busy season from October to March is expected to be more than 30 per cent, the chairman of a leading bank told Hindustan Times.
However, the finance minister clarified that there was no liquidity crunch as of now. But in the interest of the long term, banks have to mobilise deposits and re-balance their credit portfolios, he said.
Chidambaram said it was for banks to decide on interest rates, on which the government would not interfere.
However, it is important that public sector banks keep up with their private sector counterparts, he said.
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