In a move that revealed the government?s keenness to bring more players into the banking sector without delay, finance minister P Chidambaram on Thursday assured the Reserve Bank of India (RBI) of all necessary regulatory powers and urged it to start receiving applications. After a meeting with chiefs of public sector banks (PSBs), he blamed the economic slowdown for the rise in their non-performing assets (NPAs) and assured them of budgeted capital infusion of R15,000 crore to step up lending.
Gross NPAs of PSBs grew by 0.98% (of advances) in September 2012 from a year earlier, Chidambaram said, but added that though this was a matter of concern, the situation was not alarming as yet given the state of the economy. Gross NPAs stood at 4% of advances in September 2012.
In his second meeting with PSB chiefs since he took over as finance minister in August, Chidambaram said a clutch of stressed sectors like infrastructure, steel, construction, telecom, textile and food processing needed hand-holding by banks. ?RBI guidelines do not prohibit restructuring of accounts,? he said.
He said banks must support capex growth and bring costs of funds down to improve pricing and boost credit flows. The minister also asked banks to increase their focus on the small and medium enterprises and the farm segments.
While favouring interest rate cuts by the RBI, the minister said banks do not have much room to reduce interest rates as long as the prime lending rate is high. He said loan growth for housing and automobiles has shown a sharp uptick though it has remained subdued for other consumer goods, particularly durables.
On the RBI?s stance that new bank licences could be issued only after the amendments in the Banking Regulation Act, Chidambaram said the relevant Bill will be taken up in the winter or budget session of Parliament. He urged the regulator to finalise the guidelines and procedures in the meantime and start receiving the applications from interested entities. ?The three powers RBI has asked for are already available under various laws in force,? he said, referring to provisions in the RBI Act and Companies Act.
In its communication to the government earlier, the RBI had insisted that it should get powers to supersede a bank?s board, inspect other subsidiaries of the holding company to prevent systemic risks and approve acquisition of shares over 5%. It also sought powers to approve mergers and acquisitions in the banking sector.
?We are only formalising them by amending the Banking Regulation Act. And I have reassured the the RBI that the Act will indeed be amended, hopefully in the winter session or in the budget session. Hope the RBI will pick up the thread from this,? he said, adding that the entire process would still take six to eight months.
In his interaction with bank chiefs, Chidambaram reviewed deposit and loan growth, fresh slippages in NPAs, recruitment and progress in electronic transactions, especially through Aadhaar.
On capital infusion, the minister made it clear that he could not go beyond the budgetary provision of R15,000 crore. The three banks that will soon require additional capital include Indian Overseas Bank, Central Bank of India and Bank of Maharashtra, he said.
Encouraging banks to expedite expansion, the minister said PSBs will recruit 63,200 people in 2012-13 out of the total vacancies of 84,489. State Bank of India alone will recruit over 21,000 this year.
The finance ministry will soon seek Cabinet approval for a credit guarantee scheme for educational loans, which has crossed 24.63 lakh accounts with total outstanding loan of R52,480 crore till September 30.
Chidambaram also expressed confidence that total farm loans will touch R5,75,000 crore by end March 2013, which will be 21% higher than previous year. It had crossed Rs 2,39,629 crore by September this fiscal year. He asked all PSBs to ensure all Kisan Credit Cards are converted into ATM cards by April 2014. He also directed banks to speed up work for an Aadhaar-based platform so that cash transfer of subsidies for food, cooking gas, fertiliser, education scholarships, pension, and wages under rural employment schemes can be rolled out across the nation by end 2013.
