Leading public sector banks have warned that profits during 1997-98 could be hit by the two per cent cut in export credit rates and a 200 basis point increase in the cash reserve ratio (CRR) announced in August. The bankers have called for a reversal of these measures in the busy season credit policy to be announced on October 30.
Bankers pointed out that the hike in CRR had blocked the flow of lendable funds, while the reduction in export credit rates would affect earnings in the year.
During the current fiscal, the RBI slashed export credit finance rates from 11 per cent to 9 per cent and raised the CRR to 11 per cent from 9 per cent.
Export rates were cut to provide easy credit to the export sector, while the CRR was raised to strengthen the exchange rate vis-a-vis the dollar.
PSU banks, which have considerable exposure in export finance, are likely to return reduced earnings. Punjab National Bank (PNB), for instance, lends about Rs 1,800 crore to the export sector. "A two per cent reduction in earnings on that amount is a sizeable sum," an official at the bank pointed out.
Another senior official at a PSU bank said: "If the government directs the banks to charge a particular rate to help a particular sector, then the government must compensate the losses that we are incurring on that reduced rate. Surely, the rate fixed by the government is not arrived at on a commercial basis."
Bankers also added that a "substantial sum has been impounded" on account of the increase in CRR by two percentage points on August 29. Bankers hoped that the CRR would be reduced for the later half of the year but did not predict the credit policy.
"Today, the conditions being so fluid, it is difficult to predict what could be expected at the credit policy. It is difficult to say what will be announced for the busy season," a bank chairman said.
