The Reserve Bank of India (RBI) was not worried about the tardy credit growth so far in the current financial year and there was no need to ring an alarm bell, said Deputy Governor KC Chakrabarty.
“There is a late revival in rain and all bankers have told us that credit growth should pick up in the second half. May be agriculture credit growth is a little less now,” Chakrabarty said.
From April until August 14, bank credit has grown by 1 per cent compared with 3.3 per cent a year ago. In the year ended August 14, credit growth has also sharply fallen to 14.9 per cent from 25.8 per cent a year ago. Bankers say though sanctions are up 50 per cent on year until May, disbursements are not taking place due to low investment demand from companies.
However, some banks are also exercising caution on extending retail loans on concerns of deteriorating asset quality.
“Our job is to make liquidity available to banks. Now where they use it is their decision,” Chakrabarty said.
Bankers have been expressing concerns on the low investment demand from corporate houses. Union Bank of India scaled down its credit growth target to 20-22 per cent for 2009-10 (April-March) from 25 per cent set at the beginning of the year.
“We make credit growth projections based on some parameters. Now, if those parameters do not match up to expectation, then we can always change the credit growth projection,” said Chakrabarty.
RBI has projected a credit growth target of 20 per cent for 2009-10.
BPLR system
Chakrabarty does not agree with the idea of banks having two sets of benchmark prime lending rates (BPLRs).
“My personal view is BPLR is the rate at which banks should lend to the best customer, both retail and corporate. A loan should be given as per rating of a customer and not on the retail or corporate basis,” Chakrabarty said.
The apex bank has formed a working group headed by Executive Director Deepak Mohanty to overhaul the existing BPLR system, and make the structure more transparent.
On Thursday, the group circulated a draft report among its members, where it was indicated that RBI was open to Indian Banks’ Association’s suggestion of having two sets of BPLRs for banks — one for retail and the other for companies.
Chakrabarty said instead of having two sets of BPLR, banks can specify the minimum spread over which they will price their retail and corporate loans.
Currently, most banks’ BPLR range between 15.75 per cent and 11 per cent.
However, more than 70 per cent of banks’ loans on an average are sub-BPLR, which is reducing the transparency on lending rates among banks.
Deposit growth, HTM
Though credit growth has declined sharply over the last year, deposit growth hasn’t slowed down although banks have slashed deposit rates.
“This shows that there is still scope for a further cut in deposit rates and therefore lending rates,” Chakrabarty said. Deposits growth was 5.9 per cent from April to August 14, compared with 4.2 per cent last year. In the year to August 14, deposits grew 21.8 per cent compared with 21.4 per cent a year ago.
Banks have reduced their retail deposit rates by 200-250 basis points since November, and are now looking at retiring their high cost bulk deposits and replacing them with low-cost ones.
“Bulk deposits can’t be shed, their cost can be reduced,” Chakrabarty said.
The robust growth in deposits has also led to an increase in banks’ statutory liquidity ratio need, and in turn, in the held-to-maturity (HTM) segment. However, the huge government bond supply, and a tepid credit demand has led banks to buy more sovereign papers, leaving less room in their HTM segment.
State-owned banks prefer to keep majority of their SLR papers in the HTM segment as there is no mark-to-market risk. Of late, some bank treasurers have been expressing concerns of lower space in their HTM segment and suggest that RBI should increase the cap on HTM.
“Banks can put 25 per cent of their NDTL (net demand and time liabilities) in HTM. Now, banks keep around 20 per cent (of NDTL) in HTM and the remaining is kept in available for sale or held for trading category. We have not got any written request from banks to increase the HTM cap,” Chakrabarty said.
However, he added that if bankers came and expressed their concerns, RBI would always take note of such issues.
“Hiking HTM won’t change the financial strength of a bank. It is more of an accounting issue,” Chakrabarty said.
Customer service
Chakrabarty expressed dissatisfaction on the number of customer complaints RBI was receiving on service-related issues of banks.
“How can a bank not offer good service to a customer. That is the bank’s job!” he said.
The deputy governor said RBI would come out with more stringent regulation to improve banks’ customer services.
“Currently, only 10 per cent of society has access to bank credit. So, our priority now is to extend banking services and improve financial inclusion. But customer service is an important issue that banks should look into,” he said.
Another challenge of banks was managing risks and managing people, Chakrabarty said.
“There is a lot of improvement needed in managing risks. Banks are at a nascent stage in managing risks. Also, efforts should be made to attract and retain talented employees,” he said.
