The Hindu Business Line : IBA urges RBI to lift cap on unsecured advances

WITH increasing number of road and port projects coming up for funding, the Indian Banks' Association (IBA), the apex body of the Indian banking system, has made a recommendation to the Reserve Bank of India to lift the cap on commercial banks' unsecured lending.

Currently, commercial banks are not allowed to lend more than 15 per cent of their total assets towards unsecured advances.

Unsecured lending would involve the whole gamut of lending done without collaterals, such as lending to the services sector, infrastructure projects and also personal loans.

"We have asked the apex bank to either lift the cap or to remove it altogether and leave it to the discretion of the board of directors of each bank,'' said Mr V Leeladhar, Chairman of IBA and Chairman & Managing Director, Union Bank of India, at the sidelines of a FICCI seminar on `Indian Banking: Global Benchmarks `03'. The apex bank is considering the recommendation and they are expected to announce a decision on the same in a month's time.

Currently, on an average, banks had unsecured advances of only 10-12 per cent but the cap of 15 per cent was likely to be hit once big road and port projects started coming up. They would all be big budget projects which would have to be funded on the basis of the expected cash flows sans collaterals, explained Mr Leeladhar.

IBA has also approached the Securities and Exchange Board of India with regards to the doing away of limited review of quarterly results at the branch level.

"We have suggested that a half yearly audit be done instead of a quarterly one at the branch level,'' said Mr Leeladhar.

Individual banks are reportedly known to have taken up the issue with the Securities and Exchange Board of India.

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