Bankers-RBI meet next week over easing liquidity

A five-member committee, comprising public sector private and foreign bank chairmen is set to meet RBI Governor YV Reddy next Tuesday to fine tune proposals for easing liquidity in the banking system.

The central bank is expected to take a view on the matter in consultation with the finance ministry by the end of the month. Credit shortage in the banking system is estimated at Rs 1,00,000 crore

"We expect the RBI to take some action on the issue of liquidity by March 31," Finance Minister P Chidambaram said after a review meeting with PSU bank chiefs here today. The government and the RBI would come out with ways to implement the budgetary provision of giving concessional short-term crop loans at 7 per cent to farmers by the month-end, he added.

SBI Chairman AK Purwar, Citibank India Chief Sanjay Nayyar, IDBI Chairman VP Shetty, ICICI Bank Chairman KV Kamath and IBA CEO HN Sinor will meet Reddy over the issue.

"The cost of deposits is going up. There is a need for credit for lending which is leading to pressure on interest rates," PNB Chairman SC Gupta said. The bankers proposed to raise the benchmark rate for FCNR(B) and NRE deposits.

The rates, at present, are Libor plus 35 basis points and Libor plus 75 basis points, respectively.

On the banks' demand for subsidy to meet the cost of lending at 7 per cent to farmers, Oriental Bank of Commerce Chairman KN Prithviraj said, "The finance minister has taken note of our suggestions on bridging the gap of cost of lending, including suggestions for tax incentives."

Chidambaram told the bankers that growth momentum should not suffer due to liquidity problem.

The credit shortfall is based on economic growth continuing at over 8 per cent along with deposit growth of 17-18 per cent and credit growth of 25-30 per cent.

This gap can be bridged by lowering the cash reserve ratio, unwinding Rs 39,000 crore under the Market Stabilisation Scheme and reducing the surplus statutory liquidity ratio of 6 per cent points.

The government will also look into the proposals to provide a refinance window to banks through NABARD.