?Disinvestment is in the interest of the banking sector in India?

The 2009-10 Budget, though having disappointed the domestic banking and finance industry on many fronts, has also elements for their benefit.

S Sridhar, chairman & managing director, Central Bank of India and National Housing Bank, in an interaction with FE?s Hemang Palan & Kumud Das explains a few of the benefits in the Budget for the industry.

How do you see the impact of Budget on the banking industry?

It is an excellent Budget from the financial-inclusion point of view. The one-time grant of Rs 100 crore for expanding our branches in unbanked areas will help us achieve the financial-inclusion target as set by the Reserve Bank of India. We want to achieve our financial-inclusion targets through technology and the business- correspondent model.

With this marginal support from the government, We want to strengthen our base in those states where we are already present, and some of those states may include Bihar, Madhya Pradesh, Chhattisgarh, Uttar Pradesh and Orissa. The formation of SLBC would help promote financial inclusion in the country and also greater focus would be given to support various state government schemes. Our experience has shown that providing finance for lower income groups in the long run has proved to be very profitable for the Indian banking sector.

What kind of impact will high government borrowings have on interest rates?

On interest rates, let me say that the short-term interest rates are low, but the G-Sec is still hardening. If you see the inflation scenario, the WPI is nearly at zero level, but the CPI is much higher.

For banks, this means walking the tightrope. Our cost of funds and cost of deposits are also high and taking these factors into consideration, we are looking at our credit portfolio. So, a rate-cut may be a possibility, but not immediately.

As the chief of National Housing Bank(NHB), what benefits has the Budget contain for the housing finance sector?

We would like to continue our steps to provide rural housing for the poor and housing for weaker sections living in remote areas of the country. We will provide housing loans through housing finance companies and regional rural banks at an interest rate of 6%-7%. The spade work for the rural housing fund was done by us nearly 2 years ago.

But, with the new Budgetary support, we will be expediting the process. Again, the provision of up to Rs 1 lakh made in the Budget for those applying for home loans will help us spend more in the rural housing sector. In this case, the cost of a house should not exceed Rs 3 lakh. For those applying for housing loans under this category, the interest rate that would be charged by us will be merely 5%.

The provision of Rs 2,000 crore allocated to the rural housing fund in the recent Budget would help NHB provide housing for weaker sections of the society. Last year, we received Rs 1,760 crore and we have already disbursed the amount towards achieving our goal. We are financing HFCs and RRBs too on a first-come-first basis.

The announcement in the recent Budget regarding interest subsidy for the home loans up to Rs 1 lakh is a very positive development as it will help again spread acquisition of houses by the poorer segments of the society. Reverse mortgage products could work in certain sections of the society, though its a popular product among niche-class in India.

It has helped many HFCs reconsider rural housing as a lucrative business segment. Apart from traditional banks, new intermediaries like HFCs have emerged in a bid to cater to the rural housing demand in the country.

Do you think infrastructure financing will finally take-off now?

The finance minister has increased allocation of funds to the infrastructure sector under several schemes in the recent Budget. IIFCL will be given more funds at a cheaper rate, so that it extends finance as well as the facilitates to us and we will pass on the low cost funds to our infrastructure borrowers. We will get allocation of some funds, the provisionof which has been increased in the Budget for various schemes of infrastructure through IIFCL and we will pass on the major benefits to our borrowers. Our focus is on core areas like power, telecom, ports and airports.

Were you expecting announcements of further disinvestment of public sector banks in the Budget?

As regards disinvestment of PSU banks, a lot depends upon the associated policy packages that may follow after the recent Budget. There is some scope for more IPOs of state-owned banks. One has to wait and watch for the disinvestment process to happen. It is in the interest of the Indian banking sector. However, we have no plan for a follow-on public offer as of now as our liquidity is comfortable.

How do you see the problem of non-performing assets in the banking industry?

The debt-waiver scheme has worked out very well till date, especially for our bank. In fact, we are now lending to some of the original borrowers. The repayment from them is good so far and our NPAs for the first quarter in the current fiscal are under control. Only in the past 2-3 years, because of the economic boom that happened in India, have the unsecured loans received a boost. Nowadays, banks in India are providin gunsecured loans in a selective way due to NPA problems. I foresee the unsecured portfolio growth of the Indian banking sector to henceforth remain restricted as banks have to be very prudent and do a lot of risk assessment while promoting unsecured lending in the given scenario.