The Hindu Business Line : Banks told to pare exposures to G-secs

THE Finance Minister, Mr P. Chidambaram, has urged banks to pare their exposures to the Government-securities market and increase focus on lending to agriculture and industry.

"Banks must find bankable projects to lend rather than keep their money in G-secs. If higher levels of investment is the key to economic growth, banks must lend more," he told bankers at the annual general meeting of the Indian Banks' Association here on Saturday.

Over the last couple of years the increase in the profitability of most banks has come substantially from treasury operations. Many banks make more than 50 per cent of their profits from investments in G-secs, he noted. Although the requisite SLR (statutory liquidity ratio) requirements for banks is to park only 25 per cent of their funds in gilts, most banks are exposed to the extent of over 46 per cent. The credit deposit ratio of most of them is only 51 per cent.

"These indicators show a reluctance or trepidation in lending to agriculture and industry," he said. However, he conceded, that banks had responded to the call of the Government in lending to the agriculture sector and it was likely that they might meet their target of adding 50 lakh new borrowers in the farm sector.

"If Rs 1,05,000 crore can flow to the agriculture sector this year, much of the slippage due to delayed monsoons can be avoided. I urge banks to meet their agriculture lending targets,'' he said.

Inflation will ease: Responding to press queries on inflation, on the sidelines of the AGM, Mr Chidambaram said, inflation, which has reached 7.94 per cent, will ease. He said people should be `patient'.

"There are three-four factors for the rise in inflation, including excess liquidity and the imported shock of oil prices. Inflation will moderate. We have taken fiscal steps and hopefully the performance of various sectors will reduce inflation in the coming weeks," he said. Speaking on the issue of the fiscal deficit, he said, while the Government will try to rein in the fiscal deficit, it is prepared to take a hit in the larger interests of the economy.

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