State Owned Banks Fear Rising NPA’s
The Finance Ministry expressed dissatisfaction with public sector banks yesterday and the level of credit delivery towards small and medium enterprises. The Ministry asked state owned banks on Monday to increase their lending to these types of firms as well as increase lending for automobile and housing. Banks are reluctant to comply however fearing deterioration in credit quality if they cede to the governments wishes.
Finance Secretary Arun Ramanathan On Monday met with top officials from a number state-owned banks, including the State Bank of India, to review credit distribution during December 5-19 period.
“The government wants us to clear all proposals (loans) relating to SME, auto and housing. The government is not satisfied with the credit delivery to these sectors and wants us to push credit further to these sectors,” an unnamed source told the Business Standard.
Whilst credit demand has diminished to some extent in recent months, banks are also exercising greater caution now than a few months earlier in lending to SMEs, auto, textile and other stressed sectors.”If we have to listen to the government, then we have to stop worrying about NPAs (non-performing assets),” the source said.
The much hyped special home loan package announced by public sector banks in December has failed to take off due to high property prices and lack of confidence amongst buyers over their future cash flows. State-run banks announced a special home loan package which offer 8.5 per cent interest rate for loans below Rs 5,00,000 US$ 10,000 and 9.25 per cent for loan below Rs 2,000,000 or US$ 40,000.
According to RBI data, credit grew by 12 per cent since April compared with 10 per cent a year ago. In the fortnight to December 19, credit grew merely by 0.1 per cent. The finance ministry has decided to take stock of the national credit scenario every fortnight in the wake of the credit crisis and the Central Government’s fiscal and monetary stimulus measures.
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