The Telegraph
Since 1st March, 1999
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PC advises banks to lend more

Mumbai, Aug. 28: Finance minister P. Chidambaram today asked banks to concentrate on the core activity of lending rather than investing in government securities or similar instruments.

He was speaking at the annual general meeting of the Indian Banks’ Association (IBA) here today.

Referring to the substantial profits generated by treasury activities till recently, Chidambaram said their contribution to the net profit of a bank was very high with some entities reporting as much as 50 per cent.

Although the statutory liquidity ratio is capped at 25 per cent of the deposit base, banks’ investments in gilts is quite high at 46 per cent, he said.

Even the credit-deposit ratio of most banks was at 51 per cent, indicating a reluctance in lending to industry and agriculture. “Investment is key to growth and key to employment. Therefore, banks must find more bankable projects to lend, rather than invest in government securities,” he pointed out.

Senior bankers who attended the meeting included Union Bank of India CMD V. Leeladhar, State Bank chairman A. K. Purwar, Bank of Baroda CMD P. S. Shenoy, K Cherian Varghese of Corporation Bank and M. Venugopalan of Bank of India.

Many senior bankers agreed with the finance minister. K. Cherian Varghese said his bank's investment in gilts was above 36 per cent, but they were trying to bring this down to just over 25 per cent.

Chidambaram said a target of Rs 1,05,000 crore of agri cultural loans will help check much of the slippage due to delay in monsoon and help farmers in their misery.

He, therefore, wants banks to meet their respective targets of farm sector loans. The government hopes to add about 50 lakh more borrowers in this sector during this fiscal.

“I have visited Karnataka and Tamil Nadu and found that banks have responded well to the government’s call (in terms of expanding agri loans) and will soon visit Orissa, Bihar and Maharashtra,” he said.

Apart from agriculture, the finance minister wants banks to focus on infrastructure financing, education loans, self help groups and small and medium enterprises.

Investments in these sectors over the next three years would set India on a virtuous growth cycle, he added.

On SMEs, he said banks should do away with the concept of small-scale. “We have to start looking at small-scale as the entry level and encourage them to graduate to medium-scale.”

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