New Delhi: There is good news in store for companies and other borrowers as the government has directed the PSU banks to lend in the next three months Rs 56,000 crore, over and above their existing disbursement target.
Beyond March, the banks would be asked to further step up lending as the government plans to infuse over the next two fiscals Rs20,000 crore, thus enhancing banks’ loan disbursement capacity.
“We have three months more... we have enhanced the original (bank’s credit disbursal) plans by Rs 56,000 crore. So we are planning to provide, in addition to the earlier plans, over Rs56,000 crore,” according to finance secretary Arun Ramanathan.
The addition lending would be around 20% of the credit disbursed by all commercial banks during the first nine months of this fiscal. Banks have disbursed about Rs2,75,000 crore to non-food sector up to 19 December.
The target enhancement will benefit all sectors, including real estate, corporate, small and medium enterprises and non-banking financial companies, said Oriental Bank of Commerce executive director S. C. Sinha.
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The decision of the government follows the announcement of the RBI to further reduce the key policy ratios and rates to unlock more bank funds and signal soft interest rate regime to neutralise the impact of the global financial turmoil on the economy.
The RBI has since October released Rs3,20,000 crore into the system, but unless the banks shed their reluctance to lend, the benefits will not reach the industry.
The reduction in reverse repo, the interest that banks earn by parking their funds with RBI, by 100 basis points will prompt the banks to look for borrowers to earn higher returns, Sinha said.
Acknowledging that the credit flow has slackened during October and November because of overall liquidity, Ramanathan said advances by the PSU banks have picked up in December.
The government, he added has asked the public sector banks to enhance their credit expansion plans to ensure that productive sector gets adequate credit.
At the same time the government will closely monitor the provision of the sectoral credit by the state-owned banks on fortnightly basis.
In addition to this, the government has drawn Rs20,000 crore recapitalisation plan for the next two years to ensure that the banking system dies not suffer from capital adequacy constraints.
The plan, which would be implemented next year, provides credit growth needed to sustain the economic momentum in 2009-10.
At present, most of the PSU banks have adequate capital back up to expand credit growth. However, there are a such banks which may require additional capital.
“Banks which have CRAR of below 12%, well above 8% Basel norm, well above 9% RBI stipulated norm... we will help them recapitalise and bring them (CRAR) above 12%,” the then Finance Minister P Chidambaram had told Rajya Sabha.
Capital to risk (weighted) Asset Ratio (CRAR) is the ratio of capital and assets which banks are required to maintain against risks. The ratio reflects the financial strength of a bank and its ability to take risk.