Ample liquidity to ensure no dearth of funds for lending; inflation a concern
With ample liquidity and the government laying stress on fiscal health, banks expect to comfortably meet the demand for funds from the corporate sector in 2010-11.
The only worry is rising inflation, which may push the cost of funds for companies.
Bankers point out that banks park large amounts (over Rs 60,000 crore) at the Reserve Bank of India’s reverse-repo window. Plus, a lot of money is invested in government bonds and mutual funds, indicating embedded liquidity in the system.
A senior State Bank of India official said foreign direct and portfolio investments would ensure comfortable liquidity and companies would get funds for viable projects.
MV Nair, chairman and managing director, Union Bank of India, said the government borrowing would not crowd out the private sector. There would be sufficient resources in the system to meet the demand from industrial and services sectors, he added.
P Sitaram, chief financial officer, IDBI Bank, said the government was not talking of a big borrowing programme. The net borrowing of Rs 3,45,000 crore was manageable, he said.
HDFC Vice-Chairman Keki Mistry said net government borrowings were lower than market expectations. This was reassuring as it would not put undue pressure on interest rates or crowd out private sector borrowings, said Mistry.
Gunit Chadha, chief executive, Deutsche Bank Group, said, “Explicit debt and deficit targets will guide fiscal responsibility, and the resulting decline in government borrowing will free up more resources for private sector intermediation.”
The economy is expected to grow at a higher rate in 2010-11 than in 2009-10. With improvement in demand, credit growth was estimated at 20-22 per cent in the next financial year, said Nair, also the chairman of the Indian Banks’ Association.
However, companies seemed to be apprehensive about an interest rate hike. Jitendra Jain, CFO, GMR Treasury, said the net borrowings for 2010-11 were slightly lower than market expectations. However, interest rates will remain under pressure as inflation continues to remain a concern.
Bankers do not see a sharp rise in interest rates in the next financial year. Any rise would be partly on account of an increase in cost of funds, they said. Nair said bond yields should come down. The only factor which is uncertain is inflation.
