'Banks may see rise in bad loans'
Liquidity is a big issue with credit demand set to grow: SBI chief.
Shashi Ashiwal
Mr O.P. Bhatt, Chairman, SBI, at a banking conference in Mumbai on Thursday. -
Our Bureau
Mumbai, Nov. 6 Mr O.P. Bhatt, Chairman, State Bank of India, has said that he
expects no slowdown in credit growth in the current fiscal, but banks may see a
rise in their bad loans due to moderation in the economic growth.
In the last four years, banks have seen an average loan growth of around 30 per
cent. Loan growth, more or less at the same level so far in the current year,
is unlikely to slow down.
This is because trade and industry will continue to depend on banks for credit
as all other avenues for raising resources have dried up.
Speaking at the FICCI-IBA Annual Banking Summit here on Thursday, Mr Bhatt said
banks would need to raise capital as the onus of funding corporates had shifted
to them in the context of other sources of funding (external commercial
borrowings, foreign currency convertible bonds, and lines of credit from
overseas financial institutions) drying up; they would also have to take care
of the write-offs on account of stressed assets.
SBI, which announced a cut in both lending and deposit rates, is planning to
raise between Rs 5,000 crore to Rs. 10,000 crore by way of subordinated debt
(Tier-II) capital to improve its resource position, by December.
"Liquidity is a big issue. There is no problem with liquidity at this point in
time. But we need liquidity not only in the short-term, but in the long-term as
well. There is going to be some pressure on liquidity next month as it's a time
when typically the busy season starts and the government borrowings increase,"
said Mr Bhatt on the sidelines of the banking summit.
Daily monitoring
He underscored the fact that the policymakers were monitoring the liquidity
situation on a daily basis and when required appropriate liquidity management
measures would be taken. Calling for reforms in the financial sector by
encouraging foreign direct investment in the banking and insurance sectors, the
SBI chief felt that banks should tighten their risk management practices by
paying attention to credit, market, operations, counter-party and concentration
risks.
Further, there was a need to revisit regulations in order to bring entities
that are not being regulated under the regulatory purview.
The SBI chief said India had a strong, prudent and well-regulated banking
system.
"In terms of key banking parameters such as capital adequacy ratios, return on
equity, NPAs, etc., we are better than world-class banks," he added.
The bank, which has a credit-deposit ratio of 74 per cent, is not facing any
mismatch between loans and deposits, he added.
Lending, deposit rates cut
SBI on Thursday decided to reduce the benchmark prime lending rate by 75 basis
points to 13 per cent with effect from November 10. The bank also cut the
deposit rates by 50 bps across the maturities from 91 days up to 5 years and by
25 bps for deposits with maturities of 5 years and above effective from
December 1.
Mr Bhat said the rate cut would boost demand for home loans and lead to a
reduction in equated monthly instalments.
SBI had launched a 1000-day deposit scheme at an interest rate of 10.5 per
cent. According to Mr Bhatt, the bank was able to mobilise on an averge Rs
1,000 crore every day.
http://www.thehindubusinessline.com/2008/11/07/stories/2008110752570100.htm
"Some cause happiness wherever they go; others whenever they go."
- Oscar Wilde
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