Banks all over the country have not yet been able to find a viable alternative to the system of maximum permissible bank finance (MPBF) though the Reserve Bank of India (RBI) has removed the compulsion of using the system in the slack season credit policy.
This was the general opinion of bankers at a banker-borrower meet organised by the Indian Chamber of Commerce (ICC) in Calcutta yesterday. Bankers were of the opinion that MPBF still serves as a benchmark while deciding credit sanctions even after the system was made optional by RBI.
P V Maiya, chairman, ICICI Bank, Biswajit Chaudhuri, chairman and managing director, United Bank of India and Samudra Sen, head of corporate banking (eastern region), HDFC Bank were some of the representatives of the banking industry who attended the meet.
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Maiya said that bankers should take calculated risks while sanctioning credit and working capital funds. He said the present trend was to go for government securities and safe deployment of funds, rather than taking decisions for which bankers can be held responsible later.
He deplored the current trend of pulling up bank officials for decisions they had taken.
He said such a trend is bound to paralyse the banking sector where every official will be afraid to take decisions and sanction funds.
He said a decision which was delegated to junior officials a few years back, is now taken by general managers. Thus the decision taking hierarchy has shifted up by five rungs.
There has to be flexibility in the operations of banks and the banking sector should be able to adapt quickly to policy changes, Maiya said. He added the borrowers should also be co-operative in volunteering information required by the banks so that the decision to sanction credit can be taken quickly.
The common refrain of the industry representatives present at the meet was that the MPBF norm had lost significance.
This is because the strict rules under MPBF did not allow banks any leeway to tailor-credit sanction according to the needs of their borrowers, and it is unviable for one model to serve all types of industries and all types of credit needs.
The borrowers said the competition among various banks as well as between banks and financial institutions for providing credit was beneficial for them, as they were getting better terms of credit.
PTI adds: Maiya added the role of banks in financing working capital needs of the corporate sector had been diminishing gradually, and if this trend continued, banks would become dysfunctional in future. The importance of bank finance towards meeting working capital gap of companies was lower than that of sundry creditors and other liabilities. This was a disturbing feature and showed that corporates did not find bank credit to be comfortable enough in meeting the gap. In this respect, bank finance was only used to plug the small holes left over. If this was the case, then the central question which cropped up at this juncture was whether banks do have a role to play in the productive process of the economy, he said. This was one of the prime reasons why banks were flush with funds and credit pick up was so poor, he added.
Biswajit Chaudhuri said that the concept of MPBF is unique. He said that as contrary to popular notion, RBI has not done away with the idea of MPBF, but had only withdrawn some of the rigidities which were present before. This had lent greater flexibility in determining MPBF on a case-to-case basis, he added.