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RBI alerts banks on treasury deals

Calcutta, July 5: The Reserve Bank has warned scheduled commercial banks against over-dependence on treasury operations to earn profit in 2003-04. The apex bank is also concerned about the inadequate credit flow to the commercial sector despite falling interest rates and ample liquidity.

According to senior RBI officials, most of the banks have earned profit on account of treasury operations in 2002-03. Treasury operations in banking parlance means buying and selling of securities.

“Investments in the core sector has not been much and as a result profit earnings from this sector has suffered,” the bankers said.

For example, city-based United Bank of India has earned a net profit of Rs 305 crore in 2002-03. Out of this, Rs 301 crore came from treasury operations.

Profit from treasury operations of State Bank of India, the largest bank in the country, surged to Rs 1,715 crore from Rs 341 crore in the previous fiscal.

Treasury operations include buying and selling of government securities, treasury bills, PSU bonds, short-term investments and others.

The RBI is also worried about heavy investments by banks in government securities. “The central bank wants the nationalised banks to lend more to the commercial sector,” RBI officials added. It feels that any fluctuation in interest rates in the coming days may also affect the treasury operations of the banks. “This will then get reflected in the bottomline of the banks,” they added.

Due to lack of credit demand, scheduled commercial investments in government and other approved securities stood at Rs 85,738 crore last year which is much higher than the previous fiscal’s Rs 63,082 crore.

“There is hardly any big projects coming up in the current fiscal. However, we have witnessed some growth in the small and medium scale enterprises and in the retail sector. We are investing in these sectors,” the bankers said.

The bankers are also very cautious while sanctioning credit to the industrial sector. “Any wrong move on our part will turn them into sticky assets and will be reflected in our balance sheet. We would like to make safe investments,” the bankers said.

Investments by scheduled commercial banks in gilts now constitutes 37.8 per cent of their net demand and time liabilities (NDTL) as compared with the statutory stipulation of 25 per cent. The investment-deposit ratio increased from 39.7 per cent as on March 22, 2002, to 41.5 per cent in the early part of 2003.

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