Banks asked to up credit flow to SMEs

While bank advances were growing above 20 per cent yearly, lending to small and micro enterprises (SMEs) should also grow at a decent pace, the Reserve Bank of India (RBI) told banks in the annual review meeting of its standing advisory committee on SMEs on Tuesday.

“Credit growth is more than 20 per cent, higher than RBI’s projection. In Tuesday’s meeting, the focus was that micro credit also should grow. Banks will try to see how to step up credit, especially to small manufacturing units,” said D L Rawal, chairman and managing director, Dena Bank.

Lending to SMEs is affected in this rising interest rate scenario. The borrower’s loan repaying capacity is also likely to be impacted. “As of now, there are no concerns on asset quality in the sector but if interest rates keep increasing there could be some non-performing assets across sectors going ahead,” Rawal added.

According to data provided by RBI, bank credit to SMEs grew by 13 per cent in May, as compared to 14.8 per cent growth in the same month in 2010. Lending to the sector constituted 6.3 per cent of the total non-food credit and 14 per cent of the total credit to industries in May.

Punjab National Bank Chairman and Managing Director K R Kamath, who also attended the meeting, said banks were given instructions to step up credit to the micro and small units to 55 per cent of the total SME financing by 2012 and 60 per cent by 2013.

Also, the number of accounts should grow by 10 per cent every year, said Rawal.

Issues in areas of infrastructure, skill development at ground levels and creating awareness on credit guarantee trust for micro and small enterprises at grass roots levels were also discussed in the meeting.

Chiefs of State Bank of India, Union Bank of India and Syndicate Bank were among others who met RBI Deputy Governor K C Chakrabarty on Tuesday. The standing advisory committee was set up by RBI under the chairmanship of one of its deputy governors that reviews credit flow to SMEs regularly. Citing inflation concerns, RBI has increased policy rates 10 times in the last 15 months. According to RBI data, credit growth has shown some signs of moderation. As on June 17, annual growth in bank advances was down to 20.7 per cent, from 22.2 per cent as on May 20. But it is still above RBI’s projection of 19 per cent credit growth in the financial year 2011-12.

“Credit growth in the first quarter is usually dim historically and I hope it will pick up later in the year. Credit growth will be there but not to the extent of last year,” said Rawal.

Source: Business Standard

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Banks get 6 months to comply with MF investment limits

Banks with investments in excess of 10 per cent of their net worth in liquid and short-term debt schemes will get six months to bring exposure in line with the ceiling. The Reserve Bank of India (RBI) has capped exposure to these schemes at 10 per cent of net worth.

RBI said the total investment in liquid or short-term debt schemes with weighted average maturity of portfolio of not more than one year would be capped at 10 per cent of net worth as on March 31 of the previous year. According to analysts, 10 per cent of the combined net worth of all banks would come to Rs 50,000-55,000 crore.

RBI, in its monetary policy for 2011-12, had flagged the risks arising from huge exposure to such short-term schemes. The regulator had indicated that bank investments in mutual funds would be capped at 10 per cent of net worth. Bank investments in mutual funds has come down by 30 per cent since May.

Banks’ investments in liquid schemes of mutual funds had grown manifold. The liquid schemes continue to rely heavily on institutional investors, such as commercial banks, whose redemption requirements are likely to be large and simultaneous. On the other hand, mutual funds are large lenders in the overnight markets, such as collateralised borrowing and lending obligation and market repo, where banks are large borrowers.

The various mutual fund schemes also invest heavily in certificates of deposit of banks. Such circular flow of funds between banks and mutual funds could lead to systemic risk in times of liquidity crunch. Banks could potentially face a large liquidity risk. It was, therefore, felt prudent to place certain limits on banks’ investments in liquid or short-term debt schemes of mutual funds, RBI said.

Source: Business Standard

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Islamic banking can boost green finance

Dubai: Islamic Banking is the right platform to boost 'green financing' as it is based on the concept of promoting good practices and values, a leading Indian banker in Qatar has said.

R Seetharaman, the Chief Executive Officer of Doha Bank, said Islamic banking is not just a financial system, but is part of a total value-based social system that seeks to enhance the general welfare of society as a whole.

Seetharaman was delivering the inaugural address at a seminar on Islamic economics, organised by the Indian Islamic Association -- Qatar (IIAQ), under the title, 'Toward an Alternative Economy'.

"Sustainable environment development, developing water resources, facing global warming, ensuring women's participation and promotion of small-scale enterprises are all part of green financing. This is clearly an area where Islamic Banking can play a pivotal role," he was quoted by Gulf Times as saying.

Seetharaman, however, noted that Islamic banking is currently in its infancy and faces several challenges and added that young people should be encouraged to take up these challenges to ensure this significant economic system carries through and plays a leading role in the current global financial stage.

He added that Islamic banking is growing in popularity as Japan has just issued five Sukook Ijara (Islamic leasing bonds) and many other countries including Italy, Canada and Spain are showing great interest in such products and services of Islamic banking.

In the UK, there is a full-fledged Islamic bank, called the Islamic Bank of Britain, and there are 22 counters at conventional banks that offer Islamic banking services and products.

Seetharaman noted that infrastructure development projects in India can attract foreign investment if the country opens up its banking sector to Islamic banking.

India's Planning Commission has earmarked a $542 billion investment for this sector in the XI Plan (2007-12), but hardly any money comes from Gulf-based financiers, as they are reluctant to deposit in an interest-based system.

P P Abdur Rasheed, the former Head of the Economics Department at Government College, Malappuram, and K Abdullah Hassan, the Head of Research at Islamic University, Santapuram, also delivered speeches on the 'Fundamentals of Islamic Economics' and 'Basic Principles of the Zakah System in Islam'.

Source: Financial Express

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South Indian Bank appoints merchant bankers for QIP

South Indian Bank Ltd has appointed JM Financial Consultants, SBI Capital Markets and JP Morgan to manage its up to 400 million share sale to institutions, it said to the stock exchanges late on Monday.

The bank will seek shareholders' approval for the issue on July 15, it added.

Source: Business Standard

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USE appoints SBI as 10th clearing & settlement bank

United Stock Exchange (USE), engaged in currency futures and currency options trading, today said it has appointed State Bank of India (SBI) as its clearing and settlement bank.

The total number of clearing and settlement bank stands at 10 at present and the list of clearing members on USE now stands at 51, which include banks as well as financial services firms spread across the country, USE said in a statement issued here.

"Clearing and settlement services perform an extremely important function in the operation of exchanges. We are delighted to have 51 reputed members on board which already have a very active and large base for their clearing services.

Their nation-wide infrastructure and proficient operations will provide seamless electronic fund transfer and settlement processing services to USE members," USE Managing Director and Chief Executive Officer T S Narayansami said in the statement.

USE have a market share of 20-22% and for June, its market share was 22.02%, the statement said.

Source: Business Standard

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