RBI frowns on sub-PLR loans, bankers resist

The Reserve Bank of India (RBI) is against lending by banks below their benchmark prime lending rates (BPLRs) — a stance that has met with stiff opposition from bankers.
The central bank’s committee on BPLR review, which met last week, was of the view that the practice of lending below BPLR needed to be discouraged in order to make pricing of risk more transparent.
According to a banker who attended the meeting of the panel, which is headed by RBI Executive Director Deepak Mohanty, the central bank was of the view that core deposits of the banks should not be used for lending below the prime lending rate.
About three quarters of the bank lending happened at sub-BPL rates, while core deposits constituted around 80 per cent of banks’ total deposits. Deposits having tenure of more than one year are considered core deposits which gives stability to a bank’s liability portfolio.
Over the last few months, RBI has made known its concerns over lending below BPLR and had set up a committee to review the structure.
However, bankers have pointed out since BPLRs of banks were very high with some having it at around 16 per cent, it will be difficult for banks to disallow sub-PLR lending.
“If a bank has surplus liquidity, then instead of lending it to call market or parking in the reverse repo tender for 3.25 per cent, banks can deploy resources on short-term basis for 7 per cent,” a banker who attended the meeting said.
Another banker said that large companies might be unwilling to borrow for the short term at the prevailing BPLR.
On the issue of separate BPLR for retail and wholesale customers, there seemed to be disagreement among RBI officials, sources said. “Some RBI officials feel that separate benchmark is not a good idea as pricing should be done on the basis of risk perception of the borrower and not on whether it is corporate or retail,” sources said.
A section of the committee members suggested separate BPLRs for retail and corporate sectors with the former BPLR at a higher level than that for companies. Though most of the Indian banks presently have one BPLR, ICICI Bank has two benchmark rates for its retail and corporate clients. However, ICICI Bank’s retail BPLR is lower than its corporate benchmark.
The committee has already missed one deadline for submitting the report which was extended by a month to end September. IBA Chief Executive K Ramakrishnan had said that the report would come out by the end of the month.
After the last week’s meeting, RBI has referred back its suggestion in the form of a draft report to the Indian Banks’ Association which is seeking further feedback from banks.
Based on the IBA recommendations, the committee is once again scheduled to meet by the middle of this month.

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Banks step back as you draw out!

Banks are not geared up for such a steep rise in volumes.
Confess! Haven’t you all been going to bank ATMs regularly during the past few months? The sharp rise in the number of transactions at ATMs in the country seems to prove it.
You probably wanted to check out if it was really true that you could draw your money from any ATM. And barring an occasional hiccup, you got the money. And you were able to check out your bank balance on a daily basis – following up every credit that came into your account and carefully monitoring the debit of every amount from the account. Just admit it.
Data from the National Payments Corporation show that the number of balance enquiries at the ATMs went up 14 fold and the number of cash withdrawals rose ten-fold even as the number of ATMs themselves doubled during the past one-and-a-half years (see table).
It takes an average of 200 hits or withdrawals from an ATM a day for the investments to break even. Going by the usage patterns a little over a year ago, it seemed as though that was not happening.

But ever since April 1 of this year, when the RBI threw open access to all ATMs for all bank customers, ATM usage has sky-rocketed. Average hits every day was about 1,100 (about 800 for cash withdrawals alone) for August spread across 42,375 ATMs in the country.
If you assume that each transaction takes about a minute, what you have is a situation where ATMs were probably occupied for about 19 hours every day! Imagine the logistical nightmare of having to load up the cash every few hours as ATMs dry out. If one goes by these statistics, it seems that bankers didn’t get any respite last month.
Clearly, banks were not geared up for such a steep rise in volumes. And, therefore, the chorus to limit the number of free transactions to just five in another bank’s ATM.
Better stay away from ATMs for a while.

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Farm growth expectation unchanged: RBI

Despite the country experiencing deficient rainfall, the Reserve Bank of India (RBI) has not changed its growth projections for the agricultural sector in the current financial year.
It expects the farm sector to grow at 4 per cent in 2009-10.
“It (farm growth expectation) was given in the month of July. It will be again given in October. Till October, we are not going to change the number,” KC Chakrabarty, deputy governor of RBI, told at the sidelines of a seminar on Monday.
He, however, said drought would always be a concern. He highlighted the need for relocation of surplus agricultural labour to other sectors for sustaining economic growth. When asked if extension of repayment under farm loan waiver scheme would weaken credit discipline, Chakrabarty said, “It is important to help those who need the relief package. Helping the poor can never create moral hazard on credit discipline,” he said.

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RBI to ensure regular supply of fresh bank notes

Besides examining options to enhance the life of bank notes, the Reserve Bank of India has initiated a multi pronged approach involving regular supply of fresh bank notes, speedier disposal of soiled bank notes and extended mechanisation of cash processing activity to ensure that good quality bank notes are in circulation in the system. The Bank has in its Annual Report stated that during 2008-09, the value of bank notes increased by 17.1 per cent and by 10.7 per cent in volume terms. The total supply of bank notes by the Bharatiya Reserve Bank Note Mudran (P) Ltd during 2008-09 (July-June) was 8,501 million pieces as compared with 8,488 million pieces during 2007-08.The Government-owned Security Printing and Minting Corporation of India supplied 5,160 million pieces of notes in 2008-09 compared with 5,442 million pieces in 2007-08.

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Govt extends agri debt relief scheme

The government has extended the debt relief scheme for farmers with land holdings in excess of 5 acres by six months till December. It has also given banks the discretion to make payments out of provisions set aside for such loans in case the farmer is unable to repay three-fourth of the loan amount as stipulated by the scheme, according to a Reserve Bank of India circular on Monday. The remaining 25% of the loan will continue to be provided by government under the compromise package to banks. According to MV Nair, chairman, Indian Banks’ Association, and chairman, Union Bank of India, the move will enable banks to speedily settle farm loans and reduce non-performing assets from bank balance sheets. The one-time settlement scheme was part of the FY09 budget announcement, which recommended a complete waiver of agri loans taken by small and marginal farmers, with land holdings of up to 5 acres and 2.5 acres, respectively, and partial relief to ‘other’ farmers. The debt waiver and relief scheme was eligible on short-term and long-term agri loans disbursed up to March 31, 2007, and overdue as on December 31, 2007, and which remained unpaid till February 29, 2008. Banks will also not charge any interest on the eligible amount (75%) from February 29, 2008, to June 30, 2009, (the earlier date of settlement). However, banks can charge a normal rate of interest on the 75% from July 01, 2009, up to the revised date of settlement on the unpaid amount. The loans eligible for debt waiver and relief were short-term crop loans (from six to eighteen months) and for term loans (investment credit) for longer duration.

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