Govt to ensure faster credit flow: Pranab Mukherjee

Govt to ensure faster credit flow: Pranab Mukherjee
The Hindu Business Line, February 03, 2009, page 6

More banks expected to cut lending, deposit rates.

New Delhi, Feb. 2 The Union Cabinet Minister, Mr Pranab Mukherjee, who currently holds the Finance portfolio, on Monday said that the Government would strive to ensure smooth flow of credit to boost domestic demand and thereby help arrest the moderation in economic growth.

“We have to ensure faster credit flow to boost demand, especially in the rural economy and highly labour-intensive sectors,” Mr Mukherjee told reporters after a meeting with chief executives of public sector banks here.

At the meeting, sources said that bankers were urged to expand the flow of credit to productive sectors of the economy. According to the third quarter review of the Monetary Policy 2008-09, the total flow of resources to the commercial sector from all sources has been lower during the current year (upto January 23, 2009) compared with the corresponding period of the previous year.

While bank credit has substituted for the shortfall in other sources of funds to some extent, a complete substitution has so far not taken place, it was pointed out. The PSB chiefs were asked to indicate reasons for deceleration in credit growth in recent fortnights and the measures they are taking to ensure that credit growth picks up in the coming months.

Reasons were also sought for low deployment of credit to specific sectors such as industry, housing and transport, despite RBI’s recent measures to ease liquidity, improve flow of credit and stimulate the economy, sources added.

As regards agriculture credit, disbursements have increased nearly three times from Rs 86,981 crore in 2003-04 to Rs 2,43,570 crore in 2007-08. The target for 2008-09 is Rs 2,80,000 crore and disbursement of Rs 1,69,837.28 crore has already been made by the banks (till December 2008).

Meanwhile, the Finance Secretary, Mr Arun Ramanathan, said that he expects more banks to cut lending and deposit rates in the coming days. “As deposit rates have moderated, there is general expectation that lending rates will come down. Some banks have already cut rates. I expect more banks to further cut lending rates.”

Softening bias

The SBI Chairman, Mr O.P.Bhatt, said that the softening bias in interest rates would continue. He said that the meeting only saw review of interest rates and that there was no directive from the Government to cut interest rates.

“There is a thinking,” Mr Bhatt said when asked if the bank would further cut its BPLR. SBI had last reduced its BPLR by 75 basis points to 12.25 per cent.While the Canara Bank Chairman, Mr A.C.Mahajan, said that the bank was likely to cut lending and deposit rates later this month, the UCO Bank Chairman, Mr S.K.Goel, said that the bank is likely to cut its lending rates by 100 basis points this month and by another 100 basis points in March. The Corporation Bank Chairman, Mr J.M.Garg, ruled out any cut in lending rates in the near term.