Chidambaram says banks now ready to enhance credit

November 4th, 2008 - 5:09 pm ICT by IANS  

New Delhi, Nov 4 (IANS) Finance Minister P. Chidambaram Tuesday said enough liquidity had been infused into India’s financial system and that commercial banks would now enhance their credit delivery at the right price.”We will need to see some encouraging decisions by the commercial banks,” the finance minister told reporters here, after a meeting with chief executives of public sector banks.

“There are three stages for credit - liquidity, price, actual credit delivery. Let us see how the banking system responds to these three stages,” he said after the four-hour meeting.

“Public sector banks stand ready to enhance the credit limit for all standard accounts holders of micro, small and medium enterprises,” he said, adding that liquidity being a snapshot, the position was being monitored 24/7.

The State Bank of India, India’s largest commercial bank, responded immediately to finance minister’s comments and said it was, indeed, considering a cut in its interest rates.

“It has to be at least 25 basis points but it could be 50,” O.P. Bhatt, the state-run bank’s chairman, told reporters here. “After today’s meeting, our special committee meets later to review interest rates.”

According to the finance minister, Tuesday’s meeting discussed and reviewed the outcome of decisions taken on a host of issues in the last meeting Aug 12, including liquidity, farm credit and capital adequacy of banks.

He said all public sector banks had been asked to give their capital requirement for the fiscal year ending March 31, 2009 and the subsequent three years so that the government could respond with keeping their balance sheets healthy.

He also disclosed that the requests for additional lines of credit made by the Small Industries Development Bank of India (Sidbi) and the National Bank for Agriculture and Rural Development (Nabard) will be examined.

He also said that the National Housing Bank (NHB) had also sought additional line of credit worth Rs.10,000 crore (Rs.100 billion or around $2.2 billion) towards financing the realty sector, which, too, was being suitably examined.

“As regards, small and medium enterprises and the housing sector, adequate finance will be provided.”

The finance ministry and the Reserve Bank of India (RBI) will now hold a meeting Wednesday with private banks to round-up the quarterly review that followed the mid-year review of central bank’s monetary policy late last month.

Chidambaram’s meeting with the chiefs of state-run banks followed a brainstorming session chaired by Prime Minister Manmohan Singh with presidents of all apex chambers and leading industrialists Monday.

The prime minister had assured industry that all required steps were being taken to ensure that India’s growth momentum was maintained. He had, however, asked industry to refrain from knee-jerk actions like large-scale lay-offs.

According to the finance minister, the banking system had also been asked during the last review meeting to return the gold pledged by farmers for loans. This, he said, had been returned where the debt had been written off.

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