PSU banks asked to scale up their portfolio
By Joseph Samson
Jan 7, 2009
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The finance ministry has showed dissatisfaction regarding the credit disbursement of the state run banks and thereby asked banks to scale up their lending to the small and medium enterprises, automobile, and housing sectors. But banks are worried that the pressure by the ministry to increase their loan portfolio might raise the non-performing assets (NPAs).

The PSU banks fear that if they had to maintain with the government's behest, then there asset quality may come under risk. On January 5th, Finance Secretary Arun Ramanathan met the chiefs of state-owned banks, including the largest lender - State Bank of India, to evaluate the credit delivery of banks between December 5th and 9th.

An official with a PSU bank said, "The government wants us to clear all proposals (loans) relating to SME, auto and housing. The government is not satisfied with the credit delivery to these sectors and wants us to push credit further to these sectors."

Although the credit demand has relaxed to some extend, banks are yet becoming cautious in extending credit to SMEs, auto, textile and other ailing sectors.

However some bankers feel that if we have to follow the government's command then NPAs should not be thought of. "If we have to listen to the government, then we have to stop worrying about NPAs (non-performing assets)," said a banker.

PSU banks had recently announced a special home loan package for loans up to Rs 20 lakh but it is still not been implemented due to the high prices of property and people's fear about their future flow of cash, said another banker. "We have expressed our view to the government that the home loan package, which was announced, is yet to take off, primarily due to high property prices," he said.

The special home loan package announced by the PSU banks include home loans up to Rs 5 lakh offered at 8.5% while home loans between Rs 5 lakh and Rs 20 lakh are offered at 9.25%. The interest charged will be fixed for the next five years and subject to change thereafter. This scheme was declared on December 15th and is valid till June 30th.

"As some of the sectors like information technology and automobile are laying off, customers are not sure about his or her job," a senior bank official said. However, Union Bank of India informed that it has extended loans worth Rs 153 crore till December 25th under this scheme.

Ever since the global turmoil has had its impact over the financial sector of the country, the finance ministry has decided to review the situation every fortnight. In the fortnight to December 19th, credit grew only by 0.1%.


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