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Banks want RBI to alter priority lending norms

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BS Reporter Mumbai
Last Updated : Feb 14 2013 | 7:42 PM IST
Bankers, stung by the revised draft guidelines on priority sector lending, want the Reserve Bank of India (RBI) to change the way it sets priority sector lending targets.
 
They feel RBI should shift to incremental disbursement targets from the current prescription of lending a certain percentage of net bank credit.
 
It would be more practical if the RBI prescribes priority sector targets in terms of incremental disbursements, several bankers said.
 
Foreign banks would be the worst hit if revised draft gets finalised without amendments as they would have to bear nearly half of the burden of the expected increase in flow of bank credit to priority sectors. The increase in directed lending is expected to be over Rs 50,000 crore.
 
The inclusion of banks' investments in non-SLR bonds in net bank credit and withdrawal of the facility to deduct repatriable and non-repatriable foreign currency deposits from net bank credit to arrive at the priority sector lending obligations would result in most of the increased flow to identified sectors after the final guidelines are issued.
 
The facility to deduct foreign currency deposits from net bank credit for the purpose of calculating priority sector lending requirement was allowed in the early 1990s when the country was in dire need of foreign exchange.
 
The priority sector lending target for Indian banks remains at 40 per cent of net bank credit and for foreign banks at 32 per cent. The RBI has proposed to change the basis of calculating the net bank credit and taken note of high off-balance sheet exposures of some banks compared to their direct credit exposures for determining the base.
 
Foreign banks account for a large chunk of foreign currency deposits, which will push up their base for calculation of priority sector obligations. Also, the RBI has said the base for calculation would be the net bank credit or credit equivalent of off-balance sheet items, whichever is higher.
 
For most foreign banks particularly investment banks, the off-balance sheet items range from anywhere up to 15 times their advances portfolios. This provision could be daunting for these foreign banks to meet.
 
Barclays Bank, which operates as an investment bank, had a loan book of Rs Rs 4.33 crore as on March 31, 2006 against off-balance sheet items amounting to Rs 2,60,241 crore.
 
Citibank had loan assets of Rs 24,445 crore at the end of 2006-07 against off-balance sheet items of Rs 3,71,585 crore. HSBC had loans assets of Rs 16,812 crore and off-balance sheet items of Rs 3,18,735 crore. Similarly, Standard Chartered had loan assets of Rs 24,076 crore and off-balance sheet items of Rs 3,60,955 crore.

 
 

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First Published: Nov 10 2006 | 12:00 AM IST

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