Bankers and institutional heads welcomed the package announced by prime minister, Atal Behari Vajpayee, on Saturday which, they felt, would stimulate industrial activity and, consequently, credit offtake. But they said quick implementation would be critical.
"The industrial climate and capital market will improve, improving investor confidence," Industrial Development Bank of India chairman G P Gupta said. Gupta expressed confidence that the government would implement the package within a year.
"Intentions have to be monitored intensely and translated into action as soon as possible," Industrial Credit and Investment corporation of India Ltd deputy managing director Lalita Gupte said.
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"It is very critical to put in place the model concession agreement spelling out various clauses on risks associated with such projects. The revised draft is up for Cabinet approval. Once this is in place, good projects will automatically get funding," Gupte added.
"We will see our unsatisfied credit limit being fulfilled in the next six months even if some of these measures are implemented in the next three months" Bank of Baroda chairman K Kannan said.
Bankers expect substantial increases in cash credit accounts as well as in non-fund business through guarantees. Increased investment in infrastructure sector would generate demand for basic industries, crucially cement and steel, which were hit by excess capacity, causing concern over the substantial volumes of funds lent to these sectors.
"Improved industrial performance would aid loan recoveries helping to curb the growth of non-performing assets with banks" SBI chairman M S Verma said.
Kannan felt increased credit offtake could also take care of the excess liquidity in the banking system which threatened to exert pressure on banks' spreads. He felt the central bank may even lower its prescribed liquidity ratios to allow more funds to banks for lending. This could be allowed in the October 30 credit policy.
Banks are especially optimistic about expanding their working capital and term lending in construction, housing and roads which would boost basic industries like cement and steel, apart from generating employment. "Increased investments in core sectors will benefit other industries also; if major industries fare better, smaller industries will also pick up," Verma explained.
Kannan said in the next six months the sovereign rating for India will see an improvement.
While the total impact of the package would be seen over the next two years, bankers suggested that the government should also make vigilance and audits more practical to facilitate speedy implementation.