Services sector focus sought

With the services sector becoming the driving force for economic growth and employment, the Indian banking industry will have to reposition its lending strategies to include this segment, speakers said at a session on the strategy for financing services sector at the Federation of Indian Chambers of Commerce's (FICCI) conference on "Global banking: paradigm shift".

M B N Rao, chairman and managing director, Indian Bank, said: "The services sector mostly operated on their own funds. However, they do require project finance to prop up machine, equipment and space and this offered the potential to Indian banks," he said.

"At the moment, though, banks have restricted themselves to information technology, business process outsourcing and communications financing, besides agri lending thanks to government pressure," he said.

Opportunities loomed large in financing arenas like malls, hotels, marriage halls, hospitals besides education sector, he said.

While ambiguities do persist in the form of unavailability of tangible collateral, discrepancies in valuations of building contracts, shares and scrips, this sector cannot be ignored and banks should devise ways to mitigate risks, he added.

Further, they can opt for the organised lending route by funding non-banking finance companies' and smaller institutions to tap small services such as hair dressers, beauticians, and internet parlours, he said.

Rao's views were bolstered by Gerard Binet, deputy managing director, Cardiff, and executive committee member, BNP Paribas. He spoke on building in innovations like revenue sharing to service this sector.

Meanwhile, T S Bhattacharya, managing director, State Bank of India, said innovations will create a financial services category. He said banks should fund private medical facilities in rural and semi urban areas where there was a demand for such facilities.

Inflation watch: Meanwhile, The Reserve Bank of India (RBI) will initiate a measured response to check inflation as and when necessary, RBI deputy Governor Rakesh Mohan said on Thursday.

Addressing a FICCI banking summit, he said the RBI is maintaining a close and constant vigil on the prevailing inflation situation.

He said the RBI was evolving monetary methods to counter the rising inflation, adding it was analysing the components like wholesale price index and consumer price index that affected the inflation rate.

The RBI reaction comes in the wake of a spiralling inflation rate. Rising oil and other consumer product prices have pushed up inflation touched 8.33 per cent for the week ending August 28.

Rakesh Mohan said, the alarm raised by rising inflation was heartening though. While the country had come to accept the 7 to 7.5 per cent inflation rate in the 1960s and 1970s, it cannot tolerate anything more than 4 to 4.5 per cent now.