The Hindu Business Line : Instead of parking funds in G-Secs — Banks may be asked to lend more for agriculture, SMEs

ARE the days of lazy banking just about to be over? Some of the bank funds lying invested in Government securities will certainly have to be pulled out in order to lend to agriculture and SME sectors under pressure from the new Government, say bankers.

"With the Congress back in power there will be pressure on public sector banks to lend to their pet sectors of SME and agriculture. They will try to demonstrate the so-called human face of reforms through increased lending to these sectors,'' said the General Manager (Credit) of a public sector bank.

Banks may increase their lending to these segments to some extent due to moral suasion but "... we cannot increase loans drastically overnight to rural areas because there is always the fear of recovery. Many farmers not accustomed to dealing with banks are infamous for squandering away the loan amount with the understanding that there is no need to repay the bank,'' said another PSU banker.

Last year, the Deputy Governor of RBI, Dr Rakesh Mohan, criticised banks for being "lazy bankers", which consists of buying Government bonds beyond reserve requirements.

Banks are wary of rural lending for fear of low recovery rates, the resultant provisioning requirements for delayed/nil repayments and the subsequent dent on their bottom lines.

Therefore credit expansion will be moderate and will not dry up the excessive liquidity in the system. Surplus bank funds are to the extent of Rs 1,05,000 crore currently with corporates having little appetite for bank credit.

For about two years now, with companies shying away from bank credit, banks have been engaged in lazy banking, deploying over 40 per cent of their liabilities in sovereign risk, Government securities which need no credit appraisals what so ever. Statutorily banks are required to maintain only 25 per cent of their net demand and time liabilities in Government securities. Apart from the securities market, the focus of banks has been on urban and semi-urban consumer loans.

The NDA Government too in the fag end of its term had harped on crop loans at 9 per cent and all priority sector lending at lower rates.

There is a fear across the banking sector that the Government's programme of selective disinvestment of only sick units and granting of subsidies may lead to a substantial increase in the fiscal deficit which may then put pressure on interest rates.

If rates harden, the retail customer may shy away from bank loans while corporates will take a hit on their bottom lines.

The labour unions of banks today are surely a joyous lot with the pro-labour, The Left supporting the Government; wage settlements may be faster and further VRS is ruled out.

Said Mr R.J. Sridharan, General Secretary, All India Bank Officers' Association (AIBOA), which has been lobbying for a wage revision for close to 12 months, "The Left will help facilitate fruitful discussions.''

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Instead of parking funds in G-Secs — Banks may be asked to lend more for agriculture, SMEs