Increase lending to labour-intensive sectors, banks told

Written by fe Bureaus | New Delhi, Mumbai | Updated: Oct 29 2009, 05:57am hrs
Finance minister Pranab Mukherjee on Wednesday asked public sector banks to increase lending to employment-generating sectors, particularly agriculture and small and medium enterprises, during the second half of this fiscal when the demand for credit rises.

In a review meeting with North-based five public sector banks and other financial institutions, Mukherjee said banks should step up credit flow to agriculture in subsequent quarters to meet their current year priority sector-lending target.

The growth rate of advances to micro and small enterprises has been about 13% for the last six months and this needs to be improved in view of the target of 20% on year-on-year growth in flow of credit that is required to be achieved annually for this sector, he told bankers at the meeting, which was also attended by the Reserve Bank of India (RBI) and senior finance ministry officials.

After the meeting, the RBI deputy governor KC Chakrabarty said banks are expecting pick up in credit growth, even as he exhorted them to expand credit to SMEs.

What we are telling the banks is this is great opportunity for banks to increase credit flow to MSME segment and agriculture, he said. Banks have good liquidity and that would serve the purpose of bringing development to the rural areas, he said.

Mukherjee also pointed out that the government has come out with an extra 1% subvention on interest to farmers,who pay their dues in time and asked banks to make use of this scheme to improve repayments.

The minister reviewed financial performance of Punjab National Bank, Oriental Bank of Commerce, Punjab & Sind Bank, State Bank of Bikaner & Jaipur and State Bank of Patiala. PNB CMD KR Kamath said it was a focused review of the banks. He also expected interest rates to remain stable till March 2010.

Oriental Bank of Commerce CMD TY Prabhu said there were no concerns on asset price bubbles. He also said interest rates were unlikely to rise in this fiscal. It may not happen immediately as there is enough liquidity in the system, Prabhu said.

Besides officials of Indian Banks Association, chiefs of financial institutions including India Infrastructure Finance Company Ltd, Small Industries Development Bank of India, National Bank for Agriculture and Rural Development also attended the meeting.

Another banker, who was present during the meeting, said the FM was concerned over low credit disbursal in the infrastructure sector. Even though sanctions are happening in the sector, the disbursement is low as it takes lots of time to build credit in this area, he said. P & SB CMD GS Vedi said the credit growth in farm sector for the bank in the first half was merely 6%. He hoped his bank would be able to achieve the RBIs projection of 18% by the fiscal-end.