Bank chiefs in talks before meet with FM

On the eve of a meeting with Finance minister P Chidambaram, public sector bank chiefs held a series of meetings to evolve a strategy on lending.

The meetings, held under the aegis of the Indian Banking Association (IBA), also thrashed out matters including managerial autonomy, capital raising plans, liquidity position and the interest rate scenario.

A leading PSU bank chairman told Business Standard, "Banks will find it tough to lend at 7 per cent out of their own cost of funds to farmers".

The comment is significant as home and car loan rates for the consumer segment have been hardening over the recent past, with the bank liquidity position tightening.

The bankers will also make a presentation to Chidambaram on their goals for 2006-07. To provide greater managerial autonomy to bankers, further delegation of powers of chairmen and executive directors for sanction of credit proposals will also be discussed.

At present, a bank's chairman can sanction a credit proposal up to Rs 30 crore. "We want this limit to be hiked as it was set a long time ago," the bankers said. The board cannot delegate a higher limit to bank chairmen without the government approval.

In addition, a relief package for Maharashtra's poultry industry is also on the cards. This could include a one-year moratorium on principal and interest payment for term loans and working capital taken from all PSUs and rural regional banks.

Apart from this, affected farmers may be provided enhanced working capital loan and facility to convert such funds into term loan to be repaid over three years with one year moratorium.

Chidambaram will also take up credit linkages of new self-help groups during 2005-06 and the target for the next year, besides education loan targets. The RBI guidelines on raising Tier II & III capital and proposals for raising further equity capital in 2006-07 will also figure in the meeting. This is part of Chidambaram's regular review of the capital raising plans of banks for the next five years.

Credit to small and medium enterprises has also emerged as a key result area for public sector banks. The bankers will outline their expansion strategies on this front accordingly.

Agricultural credit being one of the major focus area for the UPA government, the finance minister will discuss the modalities of implementation the Budget proposals for 2006-07.

While the government had provided Rs 1,700 crore of interest subsidies on farm lending in 2005-06, no such provision has been made for 2006-07. Chidambaram had directed that credit be available to farmers at 7 per cent interest for up to Rs 3 lakh from the ensuing kharif season.