Public sector banks have demanded functional autonomy with a view to building up their skills, evolving compensation packages and making their boards responsible for credit and investment decisions.
At a meeting with finance minister P Chidambaram, some bank chiefs pointed out that bona fide credit decisions should not be questioned. They demaned that they should be granted immunity from investigations in cases where commercial judgements go wrong. We told the FM that cases should be referred to the vigilance authorities only if the bank recommends it, said a bank chairman.
During the course of the meeting, it was recognised that banks are willing to fund the blue-chip corporates but were shying away from financing mid-sized corporates and retail segments.Some of us feel that we will be forced to lend because by investing funds in commercial paper and other money market instruments our spreads are under pressure and nor can we keep funds idle, said the chairman of a bank.
While public sector banks are veering towards financing the mid-sized corporates and retail segment, bankers pointed out that this will require reorientation for they are now in the business of wholesale credit. To go retail they will have to review their organisation structure with branch managers being empowered to sanction loans.
While banks are keen to fund infrastructure projects they do not have the necessary skills to evaluate the projects. Not only do they need to require the right manpower to assess the project risk and interest rate risk, they are also demanding that resources raised for funding infrastructure projects should be exempt from reserve requirements.
Some bankers were reportedly of the view that credit should pick in the next four months. Not only do they expect to go retail, they expect corporates to opt for Rupee credit instead of external commercial borrowings subsequent to the turmoil in the international financial markets. In addition to a revival in the capital markets, increase in demand from the infrastructure sector, steel and cement industries should boost credit off take.
The issue of shoring up the capital of the weaker public sector banks also came up for discussion and there were suggestions that the government should recaptalise them and encourage the stronger ones to tap the market.
Lift reserve stipulations on funds raised for core projects: Bankers
