The Hindu Business Line : IBA’s helping hand

Slowly, the shell-shocked economy is being treated to a stream of positive signals from Mint Street and New Delhi. While the Reserve Bank of India launched a softer monetary policy with a bouquet of liquidity-boosting measures last Saturday, North Block and the Prime Minster, Dr Manmohan Singh, have in the last few days met with bank chiefs and industry captains to assure them of support in this critical period. Bank chiefs are talking of softer interest rates. And the In dian Banks’ Association, in a novel move, intends to facilitate flow of bank credit to beleaguered mutual funds.

The IBA’s role in easing liquidity problems for mutual funds facing redemption pressures opens up tremendous possibilities for other borrowers who need funds to ride the humps created by a series of factors beyond their control. In this case, the association will act as a facilitation centre, enabling mutual funds to link up with banks that have the ‘headroom’ to lend; it would do this by collecting daily data on their members’ funds position to lend under the RBI scheme for credit to mutual funds. By serving as a sort of clearing house, the IBA brings together mutual funds — the borrowers — and banks — the lenders — in the same way that Internet websites help consumers match their needs to the best deals available for various services, as for instance, travel. As the apex body of the domestic banking industry, the IBA is in a position to mediate more actively to the mutual benefit of hard-pressed borrowers and banks now flush with funds. The RBI’s Saturday measures alone will inject Rs 1,40,000 crore; banks today have credit proposals worth some Rs 50,000 crore to consider but an aversion to risk is staying their hand. Not just small and medium enterprises but large corporations are finding credit difficult or just too expensive. Private airlines, for instance, were turned away by the large public sector banks that prefer the national carrier and its implicit sovereign guarantee. The IBA must expand its facilitation services to affected industries and bridge the gap between fund-flush but wary banks and credit-starved but blue-chip companies caught in the downward spiral.

With the RBI’s fund-injection measures, policymakers seem to have eased one problem; the possibility of interest rates falling will further brighten the prospects for the borrower. Now the issue is actual lending to grease industry’s wheels once again. Who better than the IBA to lend a helping hand?

Related Stories:
IBA facilitates bank credit flow to mutual funds
Mutual funds see sharp shrinkage in asset base
Are MFs facing redemption pressure?

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